ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets
Harlow Ltd bought a machine on 1 January 20X1 for $50,000 with an estimated residual value of $5,000 and a useful life of 5 years. It uses the straight-line method. What is the annual depreciation charge?
The annual straight-line charge is $9,000. Depreciation is based on cost less residual value, so $45,000 is spread over five years. Ignoring the residual value would wrongly give $10,000.
- A$10,000
- B$9,000Correct
- C$11,000
- D$45,000
Explanation
Depreciable amount = 50,000 - 5,000 = 45,000. Divided by 5 years gives $9,000 a year. Using cost without deducting residual value would give $10,000, which is wrong because residual value must be excluded from the depreciable amount.
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