ACCA Applied Knowledge · Financial Accounting · Depreciation
Orion Co bought equipment on 1 January 20X1 for $60,000. It depreciates equipment at 25% per year on the reducing balance method, with a year end of 31 December. What is the carrying amount at 31 December 20X2?
The carrying amount is $33,750. Reducing balance applies 25% to the opening carrying amount each year: $60,000 becomes $45,000 after year one and $33,750 after year two. Charging 25% of original cost each year would wrongly give $30,000.
- A$30,000
- B$33,750Correct
- C$45,000
- D$26,250
Explanation
Year 1 depreciation = 25% x 60,000 = 15,000, so carrying amount 45,000. Year 2 depreciation = 25% x 45,000 = 11,250, leaving 33,750. $30,000 results from applying 25% to original cost both years (straight-line style), which is wrong.
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