FA – May 2012 – L1 – SA – Q35 – Depreciation Methods and Accounting for Disposals

Calculating the net book value of office equipment using the reducing balance method.

Question

Chinko Limited bought office equipment on 1 January 2008 at a cost of N900,000. If depreciation is calculated at 20% on a reducing balance basis, the net book value of the asset at the end of year 2010 will be ……………………….

Answer

N460,800
Explanation:
The reducing balance method calculates depreciation on the remaining book value. After 3 years, the depreciation will be:
Year 1: N900,000 × 20% = N180,000
Year 2: N720,000 × 20% = N144,000
Year 3: N576,000 × 20% = N115,200
The net book value at the end of 2010 will be N900,000 – N180,000 – N144,000 – N115,200 = N460,800. Therefore, the correct answer is N460,800.

Tags: Asset Accounting, Depreciation, Reducing Balance Method
Level: Level 1

Topic: Depreciation Methods and Accounting for Disposals
Series: MAY 2012

Uploader: Theophilus