**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. £1,260b. £2,940c. £4,200d. £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

Cost of the Equipment = €14,000 Useful Life = 4 years Depreciation Rate = 30% Net Book Value at…

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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

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

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