A new Van purchased on 31 March 20×5, at a cost of $22,000. The van is to be depreciated at 15% reducing balance. Depreciation is charged on a monthly basis. What is the depreciation charge for the year ended 31 August 20×5?
I assume you’re ok with calculating reducing balance depreciation but you need help with calculating the monthly reducing balance depreciation rate from the annual rate.
If the monthly rate is x% then
after 1 month the NBV is 22,000 x (1-x%), after 2 months the NBV is 22,000 x (1-x%) x (1-x%) = 22,000 x (1-x%)^2 ….. after 12 months the NBV is 22,000 x (1-x%)^12
This must be equal to the NBV after 1 year which is 22,000 x (1-15%)