Day: November 12, 2019

A firm bought a fixed asset for £500,000. The asset has an estimated useful economic life of ten years and an estimated scrap value of £50,000.  If the asset is depreciated at the rate of 20% per annum, using the reducing balance method, the depreciation charge, in relation to this asset alone, in the second year of its life will be:

Select ONE answer:

1. £45,000
2. £72,000
3. £80,000
4. £90,000

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Year 1 depreciation charge = (£500,000 – £50,000) * 20% = £90,000 & Year 2 depreciation charge = [(£500,000 – £50,000) — £90,000] * 20% = £72 000
3. Not correct
4. Not correct

 

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