On the first day of the year Major Renos purchased scaffolding for $25 000 which is to be depreciated over 10 years with a zero residual value. At the end of the first year:
A) Depreciation in the income statement is $1250 and the carrying value of the scaffolding in the balance sheet is $23 750.
B) Depreciation in the income statement is $5 000 and the carrying value of the scaffolding in the balance sheet is $20 000.
C) Depreciation in the income statement is $2 500 and the carrying value of the scaffolding in the balance sheet is $22 500.
D) Depreciation in the income statement is $0 and the carrying value of the scaffolding in the balance sheet is $25 000.

Question

Quizplus · Accepted Answer

The annual depreciation for the scaffolding would be $2,500 ($25,000/10 years). At the end of the first year, the carrying value (book value) of the scaffolding would be $22,500 ($25,000 - $2,500). Therefore, Choice C is correct. Choices A and B are incorrect because they either overestimate or underestimate the depreciation and carrying value. Choice D is incorrect because the scaffolding has been used for a year and therefore has lost some of its value, so it would not still be worth its original purchase price.

On the First Day of the Year Major Renos Purchased