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Difficulty: EasyDepreciation Methods and Calculations

Kenechukwu Enterprises purchased office equipment for ₦500,000₦500,000 on 1 January 2024. The equipment is expected to have a useful life of 5 years and a residual value of ₦50,000₦50,000. Using the straight-line method, what is the annual depreciation charge?

  1. A
    ₦100,000₦100,000
  2. ₦90,000₦90,000Answer
  3. C
    ₦450,000₦450,000
  4. D
    ₦50,000₦50,000

Answer

The annual depreciation charge for the equipment is ₦90,000₦90,000.
The correct annual depreciation is obtained by subtracting the residual value of ₦50,000₦50,000 from the purchase cost of ₦500,000₦500,000 to get a depreciable base of ₦450,000₦450,000, and then dividing by the 5-year useful life to get ₦90,000₦90,000 per annum.

Step-by-Step Solution

1
Determine the depreciable cost of the asset.
Depreciable Amount = Cost - Residual Value = ₦500,000−₦50,000=₦450,000₦500,000 - ₦50,000 = ₦450,000.
Under the straight-line method, depreciation is computed on the total net cost consumed over the asset's useful life.
2
Divide the depreciable amount by the useful life.
Annual Depreciation = ₦450,000/5=₦90,000₦450,000 / 5 = ₦90,000.
Straight-line depreciation allocates an equal expense amount to each accounting year.

Key Concept

Straight-line Depreciation Calculation
Estimated Time:45s
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Topics

Depreciation Methods and Calculations

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