Question

For financial reporting, Clinton Poultry Farms has used the declining-balance method of depreciation for conveyor equipment acquired at the beginning of 2018 for $2,848,000. Its useful life was estimated to be six years with a $232,000 residual value. At the beginning of 2021, Clinton decides to change to the straight-line method. The effect of this change on depreciation for each year is as follows: ($ in thousands)
Year Straight-Line Declining Balance Difference
2018 $436 $949 $513
2019 436 633 197
2020 436 422 (14 )
$1,308 $2,004 $696

Required:
Prepare any 2013 journal entry related to the change.

Answer 1

Answer:

The answer is given below

Explanation:

Depreciable cost at 31 December 2021 (2,848,000-2,004,000)

Depreciable Cost                               $844,000

Less: Residual value                           ($232,000)

Written down value as at January 1 ,2021 612,000

Depreciation per year as per straight line method (612,000/3) $204,000

Depreciation expense   Dr.$204,000

Accumulated Depreciation Cr.$204,000

The change in depreciation method is change in estimate which is always accounted for prospectively.Therefore the written down value as at January 2021 will be depreciation over remaining useful life of the asset which is 3 years