Illustrations of Changes in accounting estimates

B Ltd., bought an item of plant at a total cost of £100,000. The estimated useful life commencing from 1st January 2000 was 10 years.  At the start of the 4th year it was discovered that the actual estimated useful life of the plant was 8 years and not 10 years.

Required: Compute the depreciation charge for each of the eight years on the plant.

Initial depreciation         = 100,000

                                                       10

                                    =£10,000 each for 3 years

Net Book Value at beginning of year 4

= 10,000 x 3 years = 30,000

= 100,000 – 30,000 = 70,000

depreciation  for rest of the 5 years

= 70,000

        5

=£ 14,000