Backlog Depreciation

Definition of Backlog Depreciation

Whenever an asset is revalued, the profit on revaluation is transferred to Revaluation Reserve Account. But, the revaluation also gives rise to a backlog depreciation. This backlog depreciation should be charged to Revaluation Reserve Account. The concept of backlog depreciation can be followed by the help of the below illustration.

Formula to calculate Backlog depreciation

Backlog Depreciation = Difference in depreciation – Depreciation changeable in current year

Example

Compute the backlog depreciation from the information given below:

A machine was purchased on 1.1.2013 at a cost of $12,00,000 and its useful life was estimated to be 10 years. Its replacement cost was $20,00,000 on 1.1.2018 and $22,00,000 on 31,.12,2018. Calculate the amount of backlog depreciation.

Solution

Replacement cost of the machine on 1.1.2018 (Current value) = $20,00,000

Expired life on 1.1.2018 = 5 years

Depreciation under CCA = (20,00,000 x 5) / 10 = $1,00,000

Replacement/Current value on 31.12.2018 = $22,00,000

Expired life on 31.12.2018 = 6 years

Depreciation under CCA = (22,00,000 x 6) / 10 = $13,20,000

Difference in Depreciation = 13,20,000 – 10,00,000 = $3,20,000

Current year’s depreciation =  (20,00,000 + 22,00,000) / (2×10) = $2,10,000

Backlog depreciation = Difference in depreciation – depreciation changeable in current year

= 3,20,000 – 2,10,000

= $1,10,000

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