Question

Question 4 4. A firm bought a non-current 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: A. $45,000 B. $80,000 C. $90,000 D. $72,000

Please help!Can anyone gives me a detailed explanation to solve this problem?Thank you!

Answer 1

As per reducing balance method depreciation calculated on the base of book value of assets and Book value of assets mean cost of assets minus depreciation

So, Option (B) $ 80,000 is right answer

Cost of Non current assets	$ 500,000
Less: 20 % depreciation on 1st years            ( $ 500,000 * 20% )	$ 100,000
Book Value at end of 1st year	$ 400,000
Less : 2nd year depreciation @ 20% ( $ 400,000 *20% )	$ 80,000
Book value end of second year	$ 320,000