Question
Kilnbrook Ceramics bought an industrial kiln on January 1, 2023 for $480,000. It was depreciated straight-line over 10 years with a residual value of $30,000.
On January 1, 2026, after three full years, an engineer's review concludes that heavier use means the kiln has only 5 years of useful life remaining, and its residual value is now expected to be $20,000.
Required:
- 2026 Depreciation — the depreciation charge for 2026.
- Journal Entry — the December 31, 2026 depreciation entry. Use Depreciation Expense, Accumulated Depreciation and, only if you believe one is needed, Retained Earnings.
- Statement Impact — the effect of that entry on the 2026 financial statements.
Statements in this challenge
- 2026 DepreciationNumeric Answer
- Journal EntryJournal Entry
- Statement ImpactStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors
Classify the change before accounting for it. A change of accounting policy is applied retrospectively with comparatives restated; a change in an accounting estimate is applied prospectively from the date of change, with nothing restated.
Common mistakes
- Restating comparatives for what is really a change in estimate, such as a revised useful life.
- Applying a policy change prospectively when retrospective application is required and practicable.
- Omitting the adjustment to the opening balance of retained earnings on a retrospective change.
Further readingIAS 8: policies vs estimates vs errors