The plant costs $64000.00 and the residual value is $2000.00.It is expected to last 5 years.The question further says the depreciation is charged at 50% reducing balance method.
Given that we have the cost,residual value and the life expectancy it appears that the depreciation method here is straight line ($64000.00-$2000.00/5 years= $12400.00p.a) but the question mentions reducing balance method and 50% seems to be unrealistic.What method should be used in this question?
If the question says that depreciation is charged at 50% reducing balance, then you use reducing balance!!
I don’t know why you say that 50% is unrealistic – don’t forget that the depreciation will be less and less each year. It will be high in the first year, but then lower in each following year (and in the exam, it is not for you to say whether it is realistic of not – you do what the question tells you to do 🙂 )
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