Question

XYZ Ltd. purchased an asset on 1st January, 20X0, for 1,00,000 and the asset had an estimated useful life of ten years and a residual value of nil. The company has charged depreciation using the straight-line method at 10,000 per annum. On 1st January, 20X4, the management of XYZ Ltd. Reviews the estimated life and decides that the asset will probably be useful for a further four years and, therefore, the total life is revised to eight years. How should the asset be accounted for remaining years?

A Change in useful economic life of an asset is change in accounting estimate, which is to be applied retrospectively

B Change in useful economic life of an asset is change in accounting estimate, which is to be applied prospectively

C To maintain consistency, no change is required as the company has earlier estimated 10 years useful life

D Company has an option to go for either a or b

E Calculate depreciation assuming the useful life to be 8 years

Detailed Solution