On 1 January 1993, a firm, whose financial year-end is 31 December, bought an item of plant for £10,000. Initially, it was decided to depreciate the plant for over ten years, using the straight-line method, assuming no residual value.
On 1 January 1995, it became apparent that the plant would last only another five years, over which period it would be used equally.
The depreciation charge for 1995 in respect of the above item was:
Select ONE answer:
- Loss of £2,000
- Loss of £3,000
- Loss of £3,500
- Profit of £4,000
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 3
- Not Correct
- Not Correct
- Initial annual depreciation = (£10,000 – £0) / 10 = £1,000 p.a.
Aggregate depreciation to 31 December 1994 = £1,000 p.a. * 2 years = £2,000
Net Book Value (NBV) at 1 January 1995 = £10,000 – £2,000 = £8,000
Revised annual depreciation = £8,000 / 5 = £1,600 p.a. - Not Correct
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