Depreciation of Machines & Vehicle

As at 31 January 2021, Ash & John had three stringing machines. Details of these assets are presented in Exhibit 1 below.

Exhibit 1

	Machine 1	Machine 2	Machine 3
Date of acquisition	1 July 2019	1 January 2019	15 January 2021
Useful life in years	3	6	4
Cost	$3,800	$5,200	$800
Residual value	$200	$400	nil
Expected total production*	7,200	8,000	3,200
Production in January 2021**	50	85	0

* Total number of stringing services expected to be performed between the date of acquisition and the end of useful life.

* Total number of stringing services performed in the month.

The demand of stringing services declined significantly since the outbreak of COVID-19. As a result, Ash & John was considering the following options: (1) changing the depreciation method regarding stringing machines from the straight-line method to the unit-of-production method, or (2) making no change to the depreciation method but re-evaluating the remaining useful life of each machine.

Ash & John also owns a delivery van that is used to deliver shipment and transport the stringing machines to customer sites for on-site service provision. The van was given to the business by Mrs Stosur on 1 July 2018 with an estimated useful life of 10 years and a residual value of $9,000. Depreciation of this vehicle is recognised using the straight-line depreciation method.

The case states that The demand of stringing services declined significantly since the outbreak of COVID-19, as a result, Ash & John was considering the following options: (1) making no change to the depreciation method but re-evaluating the remaining useful life of each machine, or (2) changing the depreciation method regarding stringing machines from the straight-line method to the unit-of-production method.

Discuss how may Option (1) be more appropriate than the original practice (i.e. to recognise depreciation using the straight-line method based on the information in Exhibit 1).

A complete response should include discussions on: (a) the reason(s) why the original practice may not be appropriate, and the outcome if Ash & John continued with the original policy, (b) how to implement Option (1) to more accurately account for depreciation, and the outcome of implementing Option (1) properly.