Question
A company purchases equipment for $120,000 on September 1, 2027. Installation is completed on October 15, and the equipment is available for use immediately. Useful life: 5 years. Residual value: $20,000. The company uses straight-line depreciation.
Required: Calculate 2027 depreciation.
Statements in this challenge
- AnswerNumeric Answer
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 16 — Property, Plant and Equipment
Depreciation spreads the depreciable amount — cost less residual value — over the asset's useful life. Establish the depreciable amount, the method and the period of ownership within the year before computing anything; a mid-year acquisition or disposal is charged only for the months held.
Common mistakes
- Deducting residual value under the reducing-balance method, where the rate applies to carrying amount instead.
- Charging a full year on an asset bought or sold part-way through the period.
- Continuing to depreciate an asset once its carrying amount has reached residual value.
Further readingStraight-line depreciation, worked