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Sample Q) Co.A purchases an asset for $15,000 on 1 January 20X2. It has estimated useful life of 5 years and no residual value. What will be the depreciation charge for y/e 31 December 20X2?
Given A) Depreciation= 15k/5 = 3kMy Doubt=> Since asset is acquired at the beginning of the year, why is the depreciation charge not calculated using 1 minus the useful life estimated at the beginning of the year (=15k/4 in this case), since by the time the financial year ends the one year has already passed?
If the company’s policy is to use straight line depreciation, then the charge will be $3,000 in each of the 5 years.
Have you watched my free lectures on depreciation?I haven’t watched the lecture yet, sir. I am studying for FR now but my basics aren’t good, so I have just began watching your lectures in FA and haven’t yet to reach the depreciation topics, but came across this doubt while trying out some questions
I will go through your lecture on this topic.
Thank you for you reply.
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