DEPRECIATION EXPENSE
Name:
Institution:
Date:
Before Changes
Date Acquired
Cost
Depreciation at 2011
Useful Life
Residual Value
WareHouse
01/01/2007
$ 200,000.00
$ 50,000.00
25
$ 10,000.00
Building
01/01/2006
$ 1,600,000.00
$ 228,000.00
40
$ 100,000.00
Depreciation Charge will be p.a.
WareHouse
$ 7,600.00
Depreciation Charge will be p.a.
Building
$ 37,500.00
After Changes
Date Acquired
Cost
Depreciation at 2011
Useful Life
Residual Value
WareHouse
01/01/2007
$ 200,000.00
$ 50,000.00
20
$ 6,000.00
Building
01/01/2006
$ 1,600,000.00
$ 228,000.00
50
$ 55,000.00
Depreciation Charge will be p.a.
WareHouse
$ 9,700.00
Depreciation Charge will be p.a.
Building
$ 30,900.00
The depreciation expense under previously was;
warehouse: $ 7,600
building: $ 37,500
The new depreciation after updates is;
warehouse: $ 9,700
building: $ 30,900
Under previous depreciation the depreciation expense was $7,600 plus $37,500 = $45,100 this means that the net income is lower than it is now because the new calculation was $9,700 plus $30,900 = $40,600; in this cause there will be a difference of ($40,600-45100)=$3400 which means that the net income will decrease by $3400, (Anisa et al., 2021). The impact of this alteration on the income statement is that the net income of the company will be reduced.
The impact of this change to the balance sheet is that there is an increase in the total assets $3400 as we saw it in the income statement because the net income was reduced by $3400 which means that there is a decrease in net income and a corresponding increase in total assets. The difference between the total assets and net assets represents cash on hand,(Accardo et al., 2019). The impact of this change on the balance sheet is that there is a decrease in the net income and an increase in the total assets which means that there is an increase in cash on hand.
The recommendation of this change is that it should be adopted as an increase in assets means that there is an increase in the ability to pay off debts which means that the company will be able to pay off its debts easier.
References
Accardo Jr, K. M. (2019). A Bridge over Troubled Waters: Straight Line Depreciation vs. New for Old Rule. Loy. Mar. LJ, 18, 247.
Anisa, M., Amelia, N., &Pebriana, R. (2021). Comparison of Fixed Assets Depreciation Method and Direction Influence on Company Profits in PT Akasha Wira International Tbk. International Journal of Research in Vocational Studies (IJRVOCAS), 1(1), 11-17.
Archibald, T. R. (1967). The return to straight-line depreciation: An analysis of a change in accounting method. Journal of accounting Research, 164-180.
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