The following extracts are made from the books of Agama Enterprises.
|
Motor van (cost) |
120000 |
|
Life span |
4 years |
|
rate of Depreciation |
40% |
Method of depreciation used is Diminishing Balance The depreciation charge for year two is
-
#28,800
- #48,000
- #17,280
- #10,370
The correct answer is: A
Explanation
First, we calculate the depreciation for the first year: Depreciation for year one = Cost x Rate of Depreciation = 120,000 x 40%
= 48,000
Next, we calculate the remaining book value after the first year: Book value after year one = Cost - Depreciation for year one
= 120,000 - 48,000
= 72,000
To calculate the depreciation charge for year two, we apply the rate of depreciation to the remaining book value Depreciation for year two = Remaining book value x Rate of Depreciation
= 72,000 x 40%
= 28,800