Question

QUESTION 6 Chris Supply Co. purchased a new factory machine on July 1, 2011, at a cost of $60,000. It had a residual value of $10,000 and EUL of 5 years. Under the straight line depreciation method, the book value of the equipment on January 1, 2013, is: $50,000. O $60,000. $55,000 $45.000 None of the above.

Answer 1

Answer is $45,000

Calculation of Depreciation per year as per straight line method Cost (a) 60000 Residual Value (b) 10000 Depreciable Amount (ab) 50000 Useful Life of Machine 5 years Depreciation Per year 10000

Duration Depreciation Date 01-Jul-11 Book Value of Machine 60000 5000 31-Dec-11 6 months 55000 (10000 x 6/12) 31-Dec-12 1 year 10000 45000 01-Jan-13 Opening 45000

Straight line method depreciation = Depreciable amount Economic useful Life (EUL)

Depreciable amount = Cost of machine - Residual value

Depreciation for partial year = Depreciation *

Where, M is the number of months the machine is held for use.