For financial reporting, Clinton Poultry Farms has used the declining-balance method of depreciation for conveyor equipment acquired at the beginning of 2015 for $2,560,000. Its useful life was estimated to be six years,with a $160,000 residual value. At the beginning of 2018, Clinton decides to change to the straight-line method.The effect of this change on depreciation for each year is as follows:($ in thousands)Year Straight Line Declining Balance Difference2015 $ 400 $ 853 $4532016 400 569 1692017 400 379 (21)$1,200 $1,801 $601Required:1. Briefly describe the way Clinton should report this accounting change in the 2016–2018 comparative financial statements.2. Prepare any 2018 journal entry related to the change.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
For financial reporting, Clinton Poultry Farms has used the declining-balance method of
with a $160,000 residual value. At the beginning of 2018, Clinton decides to change to the straight-line method.
The effect of this change on depreciation for each year is as follows:
($ in thousands)
Year Straight Line Declining Balance Difference
2015 $ 400 $ 853 $453
2016 400 569 169
2017 400 379 (21)
$1,200 $1,801 $601
Required:
1. Briefly describe the way Clinton should report this accounting change in the 2016–2018 comparative financial statements.
2. Prepare any 2018
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 6 images
