Question
On January 1, 2025, a machine cost $100,000. Residual value was estimated at $10,000 and useful life at 10 years. At December 31, 2027, management determines the machine will remain useful for another 8 years. The residual value remains $10,000.
Required: Determine depreciation for 2028.
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