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

Brindle Co buys equipment on 1 January 20X1 for $80,000. It is depreciated at 25% a year on the reducing balance method. What is the carrying amount at 31 December 20X2?

The carrying amount is $45,000. Reducing balance applies 25% to the opening carrying amount each year: $80,000 becomes $60,000 after year one and $45,000 after year two. Applying 25% to original cost would wrongly give $40,000.

  1. A$40,000
  2. B$45,000Correct
  3. C$60,000
  4. D$50,000

Explanation

Year 1 depreciation = 25% x 80,000 = 20,000, carrying amount 60,000. Year 2 depreciation = 25% x 60,000 = 15,000, carrying amount 45,000. Using 25% on original cost for both years gives $40,000, which is the straight-line-on-cost error.

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