Assume that In 2014 Spar made profit of £2,000000 before deprecation. The compan

Question

Assume that In 2014 Spar made profit of £2,000000 before deprecation. The company has £20,000000 worth of equipment. Currently it using the straight line method to depreciate its equipment over 10 years. However, the company is thinking to change its depreciation policy by to 20 years estimated useful life instead of 10 years. A. Do you think this change will affect the company’s profit? Explain your answer using the calculation to show the profit before and after the change. If there was effect on company’s profit, what is the amount of the change.

Explanation / Answer

Depreciation (Before) =cost/useful life

                    = 20,000,000/10 = $ 2,000,000

Depreciation(after) = 20,000,000/20 =$ 1,000,000

A)Yes,change in accounting estimate of useful life from 10 to 20 years will increase company profit before tax from 0 to$1,000,000

The company profit will increase by $ 1,000,000

Before After Earning before Depreciation 2,000,000 2,000,000 less:Depreciation -2,000,000 -1,000,000 Earning before tax 0 1,000,000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.