On 31 December 2013 a new motor vehicle with a useful life of 5 years and an estimated residual value of $5,000 was purchased by a business at a cost of $25,000. The amount of depreciation expense charged for the six months ended 30th June 2014, using the straight-line method, is:
A) $25,000
B) $2,000
C) $4,000
D) nil.

Question

Quizplus · Accepted Answer

The straight-line depreciation method spreads the cost of the asset evenly over its useful life. The annual depreciation expense is calculated as (Cost - Residual Value) / Useful Life. For this vehicle, it's ($25,000 - $5,000) / 5 = $4,000 per year. For six months, the depreciation expense is half of the annual amount, which is $4,000 / 2 = $2,000.

On 31 December 2013 a New Motor Vehicle with a Useful