ACCA Applied Knowledge · Financial Accounting · Depreciation
Delta Co uses the reducing balance method at 25% per annum. It bought a vehicle on 1 July 20X2 for $80,000 and charges a full year of depreciation in the year of purchase and none in the year of disposal. Its year end is 30 June. What is the carrying amount of the vehicle at 30 June 20X4?
The carrying amount is $45,000. Under reducing balance at 25%, year one charges $20,000 on cost of $80,000, leaving $60,000. Year two charges 25% of $60,000, which is $15,000, leaving $45,000 at 30 June 20X4. The percentage applies to the carrying amount, not to cost.
- A$45,000Correct
- B$60,000
- C$35,000
- D$50,000
Explanation
Purchase 1 July 20X2 is in the year ended 30 June 20X3, so a full year is charged. Year 1: 80,000 x 25% = 20,000, carrying amount 60,000. Year 2: 60,000 x 25% = 15,000, carrying amount $45,000. $35,000 applies straight-line 25% of cost twice (wrong method); $60,000 is only one year's depreciation.
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