DEPRECIATION OF NON-CURRENET

ASSSETS

CHANGING DEPRECIATION
METHOD
 Changing depreciation method does not comply with the
accounting concept of CONSISTENCY.

HOWEVER,
 Method of depreciating a Non-current assets may be changed if the
current method does not reflect the usage of the Non-current asset.
 Concept of Materiality and prudence is applied.
 To ensure that profit and the asset value is not under or Over stated
Example:
 0n 1 January 2019, Siena has the following balances in his ledger accounts.
Motor Vehicle at cost £240 000.
Provision for depreciation ?
 All the vehicles were purchased on 01 January 2016 and has been
depreciated using 15% per annum using straight line method.
 On 31 December 2019, Siena decided to change the depreciation to 15%
on reducing balance method. The changes are to be recorded in the books
at 31 December 2019.
• Calculate, showing clearly all workings, the Adjustment required to the
provision for depreciation on the motor vehicles to account the change
in depreciation.
• Prepare the provision for depreciation account for the year ended 31
December 2014.
 Calculate the Accumulated depreciation for the Vehicles as at the
start of current financial Year

Straight line (15%) Reducing balance (15%)

31-Dec-16 240000x10% =36000 240000 x 15% =36000

31-Dec-17 240000x10% =36000 204000 x10% =30600

31-Dec-18 240000x10% =36000 173400 x10%=26010

108000 92610
 Accumulated depreciation as at 01 January 2019
Straight line = 108000
Reducing Balance method = 92610
Adjustment needed in the provision for depreciation Account
(reducing depreciation from 108000 to 92610)

Provision for depreciation Dr 15 390

Income Statement Cr 15 390

If depreciation need to be increased , adjustment should be as follows:

Income statement Dr xxx
Provision for depreciation Cr xxx
 Depreciation for the year ended 31 December 2019
 Calculate it using the new method (Reducing balance method)

31 December 2019: (cost – dep ) x 15%

= (240000 – 92610) x 15%
= 22109
 Provision for depreciation Account
Income statement
31-Dec-19 (adjustment) 15390 01-Jan-19 balance b/d 108000

31-Dec-19 income statement 22109

31-Dec-19 balance c/d 114719

130109 130109

01-Jan-20 balance b/d 114719