ExpertMedium2 marksShort Answer
ACCA · Question 11 · Recording transactions and events
A company purchases a machine on 1 April 20X1 for $60,000. It has an estimated useful life of 5 years and a residual value of $5,000. The company uses the straight-line method of depreciation and charges depreciation on a pro-rata basis (monthly). What is the depreciation expense for the year ended 31 December 20X1? (Enter numbers only)
A company purchases a machine on 1 April 20X1 for $60,000. It has an estimated useful life of 5 years and a residual value of $5,000. The company uses the straight-line method of depreciation and charges depreciation on a pro-rata basis (monthly). What is the depreciation expense for the year ended 31 December 20X1? (Enter numbers only)
How to approach this question
Calculate the annual depreciation first, then apportion it for the number of months the asset was owned in the year.
Full Answer
Annual depreciation = ($60,000 - $5,000) / 5 years = $11,000 per year. The asset was owned from 1 April to 31 December (9 months). Depreciation for the year = $11,000 * (9/12) = $8,250.
Common mistakes
Forgetting to deduct the residual value, or calculating for a full 12 months instead of 9.
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