After the financial statements for 2020 has been prepared, but before it was signed off, Reddex Limited
Question:
After the financial statements for 2020 has been prepared, but before it was signed off, Reddex Limited changed its method of depreciating machinery.
Upon investigation, Reddex Limited determined, based on new information available, that the previous depreciation pattern differed from the actual pattern of economic benefits derived from the depreciable assets, and therefore decided to make the change to reflect the usage pattern of the machines better.
The reducing balance method at 20% per annum will be applied in the future instead of the straight-line method. The straight-line method was applied over five years.
On 30 June 2019, Reddex Limited had machinery with a total cost of R800 000 and accumulated depreciation of R400 00 in their records. No machinery has been
purchased or disposed of during the financial year ending 30 June 2020.
REQUIRED:
2.1) Briefly discuss how the abovementioned change will be accounted for with reference to the requirements of IAS 8.
2.2) Calculate the depreciation and carrying amount of the machines for the:
• financial year ending 30 June 2020;
• financial year ending 30 June 2021 and
• financial year ending 30 June 2022.
2.3) Prepare the journal entries required in the records of Reddex Limited to account for the change in estimate for the financial year ended 30 June 2020.
2.4) Prepare the change in accounting estimate note disclosure required in the 30 June 2020 financial statements of Reddex Limited.
Expert Answer:
Any change in depreciation technique results in a change in the accounting estimate any adjustments ... View the full answer
