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ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets

A company buys a machine for $60,000 on 1 October 20X1. Its policy is straight-line depreciation over 6 years, nil residual value, charged monthly from the month of purchase. The year end is 31 December. What is the depreciation charge in the year ended 31 December 20X1 and the carrying amount at that date?

The charge is $2,500 and the carrying amount is $57,500. Annual depreciation is $10,000 (60,000 over 6 years), and the asset was held for only three months of the year, so one quarter, $2,500, is charged and deducted from cost.

  1. ACharge $2,500; carrying amount $57,500Correct
  2. BCharge $10,000; carrying amount $50,000
  3. CCharge $2,500; carrying amount $50,000
  4. DCharge $7,500; carrying amount $52,500

Explanation

Annual depreciation = 60,000 / 6 = 10,000. For 3 months (Oct-Dec) the charge is 10,000 x 3/12 = 2,500. Carrying amount = 60,000 - 2,500 = 57,500. A full year's charge of 10,000 ignores the time apportionment.

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