ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets
Delta Co buys equipment on 1 April 20X1 for $120,000 with no residual value. It depreciates equipment at 25% per year on the reducing balance method, with a full year's charge in the year of acquisition and none in the year of disposal. The year end is 31 December. What is the carrying amount at 31 December 20X2?
The carrying amount at 31 December 20X2 is $67,500. Reducing balance applies 25% to the opening carrying amount each year: 30,000 in 20X1 leaves 90,000, then 22,500 in 20X2 leaves 67,500. Using 25% of original cost each year would wrongly give $60,000.
- A$67,500Correct
- B$60,000
- C$90,000
- D$63,750
Explanation
Year 1 charge = 25% x 120,000 = 30,000, carrying amount 90,000. Year 2 charge = 25% x 90,000 = 22,500, carrying amount 67,500. $60,000 results from straight-line 25% of cost for two years.
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