ExpertMedium2 marksMultiple Choice
ACCA · Question 21 · Recording Transactions: Tangible Assets
Section A
An organic farm purchased a tractor for $60,000 on 1 July 20X1. It is depreciated at 20% per annum using the reducing balance method. What is the depreciation charge for the year ended 31 December 20X3? (Assume a full year's depreciation is charged in the year of acquisition).
Section A
An organic farm purchased a tractor for $60,000 on 1 July 20X1. It is depreciated at 20% per annum using the reducing balance method. What is the depreciation charge for the year ended 31 December 20X3? (Assume a full year's depreciation is charged in the year of acquisition).
Answer options:
A.
$12,000
B.
$9,600
C.
$7,680
D.
$15,360
How to approach this question
Calculate depreciation year by year. Year 1 (20X1): 20% of $60,000. Subtract to find Carrying Amount (CA). Year 2 (20X2): 20% of new CA. Subtract. Year 3 (20X3): 20% of the latest CA.
Full Answer
C.$7,680✓ Correct
Year 1 (20X1): $60,000 * 20% = $12,000. Carrying Amount = $48,000.
Year 2 (20X2): $48,000 * 20% = $9,600. Carrying Amount = $38,400.
Year 3 (20X3): $38,400 * 20% = $7,680. The depreciation charge for 20X3 is $7,680.
Common mistakes
Calculating straight-line depreciation ($12,000 every year) or forgetting to subtract previous depreciation.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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