Midlothian Ltd uses composite-rate depreciation rate at 12.5% p.a. for its office equipment. The office equipment account had a $17 000 balance of the beginning of the period and a $33 000 balance at the end of the accounting period. The annual charge for depreciation is:
A) $2062.
B) $4125.
C) $3125.
D) $6250.

Question

Quizplus · Accepted Answer

The annual charge for composite-rate depreciation is calculated as follows:
Annual Depreciation = (Total Depreciation / Total Depreciable Cost) x 100%
Total Depreciable Cost = (Beginning Balance + Ending Balance) / 2
Total Depreciation = Total Depreciable Cost x Composite-rate Depreciation
Total Depreciable Cost = ($17,000 + $33,000) / 2 = $25,000
Total Depreciation = $25,000 x 12.5% = $3,125
Annual Depreciation = ($3,125 / $25,000) x 100% = 12.5%
Therefore, the annual charge for depreciation is $3,125, which corresponds to choice C).

Midlothian Ltd Uses Composite-Rate Depreciation Rate at 12