None North Ltd. purchased a building in 20X5 for $1,200,000. Straight-line depreciation was used, with a useful life of 40 years and aresidual value of $200,000. A full year of depreciation was charged in 20X5.In 20X8, the company decided to switch depreciation methods to declining balance, using a rate of 10%. The tax rate is 30%.Required:1. Assume this is a change in estimate, and calculate 20X8 depreciation expense.Depreciation expense$112,5002. Assume this is a change in policy, and calculate 20X8 depreciation expense and the cumulative effect of the change on 20X8opening retained earnings.Depreciation expense$ 240,000

2. **Change in Policy:** When the change in depreciation method is considered a change in policy,…

Answered: North Ltd. purchased a building in 20X5…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 18E

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North Ltd. purchased a building in 20X5 for $1,450,000. Straight-line depreciation was used, with a useful life of 40 years and a residual value of $470,000. A full year of depreciation was charged in 20X5. In 20X8, the company decided to switch depreciation methods to declining balance, using a rate of 10%. The tax rate is 20%. Required: 1. Assume this is a change in estimate, and calculate 20X8 depreciation expense. Depreciation expense $ 137,650 2. Assume this is a change in policy, and calculate 20X8 depreciation expense and the cumulative effect of the change on 20X8 opening retained earnings. Depreciation expense Cumulative effect
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