ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets
Harrow Ltd bought a machine on 1 January 20X1 for $80,000. It has an expected useful life of 5 years and an expected residual value of $5,000. Harrow uses the straight-line method. What is the annual depreciation charge?
The annual straight-line charge is $15,000. Depreciable amount is cost less residual value, 80,000 minus 5,000, which is $75,000, and this is spread evenly over the five-year useful life. Ignoring residual value would wrongly give $16,000.
- A$15,000Correct
- B$16,000
- C$17,000
- D$12,000
Explanation
Straight-line depreciation = (cost - residual value) / useful life = (80,000 - 5,000) / 5 = $15,000. The figure of $16,000 ignores the residual value (80,000/5).
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