ExpertMedium2 marksShort Answer
ACCA · Question 13 · Recording Transactions and Events
A transport company purchases a delivery truck on 1 April 20X1 for $80,000. It has an estimated useful life of 5 years and a residual value of $10,000. The company uses the straight-line method of depreciation and charges depreciation on a pro-rata basis. The financial year ends on 31 December. What is the depreciation charge for the year ended 31 December 20X1? (Enter numbers only)
A transport company purchases a delivery truck on 1 April 20X1 for $80,000. It has an estimated useful life of 5 years and a residual value of $10,000. The company uses the straight-line method of depreciation and charges depreciation on a pro-rata basis. The financial year ends on 31 December. What is the depreciation charge for the year ended 31 December 20X1? (Enter numbers only)
How to approach this question
Calculate annual depreciation: (Cost - Residual Value) / Useful Life. Then pro-rate for the number of months owned in the year (April to December).
Full Answer
Annual depreciation = (Cost $80,000 - Residual Value $10,000) / 5 years = $14,000 per year. The truck was owned from 1 April to 31 December, which is 9 months. Depreciation for 20X1 = $14,000 × (9/12) = $10,500.
Common mistakes
Forgetting to deduct the residual value, or calculating for a full year instead of 9 months.
Practice the full ACCA FA — Financial Accounting Practice Exam 4
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