Sawyer bought an office equipment for £14,000 on 1 July 2019. It is expected to have a usetul lite of 4 years. If depreciation is to be provided at 30% on the reducing-balance basis. What is the depreciation charge for the year second year? a.£1,260 b.£2,940 c.E4,200
Sawyer bought an office equipment for £14,000 on 1 July 2019. It is expected to have a usetul lite of 4 years. If depreciation is to be provided at 30% on the reducing-balance basis. What is the depreciation charge for the year second year? a.£1,260 b.£2,940 c.E4,200
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![**Depreciation Calculation Problem: Reducing-Balance Method**
*Problem Statement:*
Sawyer bought an office equipment for £14,000 on 1 July 2019. It is expected to have a useful life of 4 years. If depreciation is to be provided at 30% on the reducing-balance basis, what is the depreciation charge for the second year?
*Multiple Choice Options:*
a. £1,260
b. £2,940
c. £4,200
d. £2,310
*Explanation:*
1. **Purchase Cost and Useful Life**:
- The cost of the office equipment is £14,000.
- It has a useful life of 4 years.
2. **Depreciation Method**:
- The reducing-balance method is used, with an annual depreciation rate of 30%.
3. **Depreciation Charge Calculation**:
- **First Year**: Calculate the depreciation for the first year.
\[
\text{Depreciation for 1st year} = \text{Cost} \times \text{Depreciation Rate} = £14,000 \times 30\% = £4,200
\]
- **Carrying Amount at the End of First Year**:
\[
\text{Carrying Amount} = \text{Cost} - \text{Depreciation} = £14,000 - £4,200 = £9,800
\]
- **Second Year**: Calculate the depreciation for the second year.
\[
\text{Depreciation for 2nd year} = \text{Carrying Amount} \times \text{Depreciation Rate} = £9,800 \times 30\% = £2,940
\]
Hence, the correct answer is:
b. £2,940](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fafba4900-e1cd-4793-a5e3-837681347710%2F5ceb2011-7380-421d-a53c-b056e1703301%2Fvzh1s8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Depreciation Calculation Problem: Reducing-Balance Method**
*Problem Statement:*
Sawyer bought an office equipment for £14,000 on 1 July 2019. It is expected to have a useful life of 4 years. If depreciation is to be provided at 30% on the reducing-balance basis, what is the depreciation charge for the second year?
*Multiple Choice Options:*
a. £1,260
b. £2,940
c. £4,200
d. £2,310
*Explanation:*
1. **Purchase Cost and Useful Life**:
- The cost of the office equipment is £14,000.
- It has a useful life of 4 years.
2. **Depreciation Method**:
- The reducing-balance method is used, with an annual depreciation rate of 30%.
3. **Depreciation Charge Calculation**:
- **First Year**: Calculate the depreciation for the first year.
\[
\text{Depreciation for 1st year} = \text{Cost} \times \text{Depreciation Rate} = £14,000 \times 30\% = £4,200
\]
- **Carrying Amount at the End of First Year**:
\[
\text{Carrying Amount} = \text{Cost} - \text{Depreciation} = £14,000 - £4,200 = £9,800
\]
- **Second Year**: Calculate the depreciation for the second year.
\[
\text{Depreciation for 2nd year} = \text{Carrying Amount} \times \text{Depreciation Rate} = £9,800 \times 30\% = £2,940
\]
Hence, the correct answer is:
b. £2,940
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