# Backlog Depreciation

### Reviewed by Subject Matter Experts

Updated on January 30, 2024

## Backlog Depreciation: Definition

Whenever an asset is revalued, the profit on revaluation is transferred to the revaluation reserve account. However, the revaluation also gives rise to backlog depreciation.

This backlog depreciation should be charged to the revaluation reserve account. The concept of backlog depreciation is illustrated in the next section.

## Formula to Calculate Backlog Depreciation

Backlog depreciation = Difference in depreciation - Depreciation chargeable in current year

### Example

Compute the backlog depreciation using the information given below:

• A machine was purchased on 1 January 2019 at a cost of \$12,000,000
• The machine's useful life is estimated at 10 years
• The machine's replacement cost was \$20,000,000 on 1 January 2024 and \$22,000,000 on 31 December 2024

### Solution

Replacement cost of the machine on 1/1/2024 (Current value) = \$20,000,000

Expired life on 1 January 2024 = 5 years

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

Replacement/Current value on 12/31/2024 = \$22,000,000

Expired life on 31 December 2024 = 6 years

Depreciation under CCA = (22,000,000 x 6) / 10 = \$13,200,000

Difference in Depreciation = 13,200,000 - 10,000,000 = \$3,200,000

Current year's depreciation = (20,000,000 + 22,000,000) / (2 x 10) = \$2,100,000

Backlog depreciation = Difference in depreciation - depreciation chargeable in current year

= 3,200,000 - 2,100,000

= \$1,100,000

## Backlog Depreciation FAQs

About the Author

### True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.