ACCA Applied Knowledge · Financial Accounting · Depreciation
Harbour Ltd bought a machine on 1 January 20X1 for $85,000. It is expected to have a residual value of $5,000 and a useful life of 8 years. Harbour uses the straight-line method. What is the annual depreciation charge?
The annual straight-line charge is $10,000. Depreciable amount is cost less residual value, $85,000 less $5,000 = $80,000, spread evenly over the 8-year useful life. Ignoring the residual value would overstate the charge at $10,625.
- A$10,000Correct
- B$10,625
- C$11,250
- D$8,000
Explanation
Depreciable amount = 85,000 - 5,000 = 80,000. Divided by 8 years gives $10,000 a year. Using cost without deducting residual value gives $10,625, which is wrong because residual value is excluded from the depreciable amount.
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