ACCA Applied Knowledge · Financial Accounting · Depreciation
Zeta Co buys equipment on 1 April 20X1 for $90,000 and depreciates it at 25% per year reducing balance, with a full year's charge in the year of purchase and none in the year of disposal. The year end is 31 December. What is the carrying amount at 31 December 20X2?
The carrying amount is $50,625. Under the reducing balance method the first year charge is $22,500, leaving $67,500, and the second year charge is 25% of that, $16,875. The charge is based on the opening carrying amount, not original cost.
- A$45,000
- B$50,625Correct
- C$40,500
- D$67,500
Explanation
Year 1 charge: 25% x $90,000 = $22,500, carrying amount $67,500. Year 2 charge: 25% x $67,500 = $16,875, giving $50,625. Using $45,000 would apply straight-line depreciation of $22,500 each year.
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