Abbas runs a wholesale confectionery business.During 20X5 he installed a new computerized inventory system at a cost of £320 000.He decided to depreciate the system at 15% each year on the reducing balance basis, but because it did not come online until mid-20X5 he charged only half of the first year's depreciation in his accounts for the year ended 31 December 20X5. What was the carrying amount of the computerized inventory system at 31 December 20X6?

Question

Quizplus · Accepted Answer

Depreciation for the first year (20X5) = (15% x £320 000)/2 = £24 000
Carrying value at end of 20X5 = £320 000 - £24 000 = £296 000
Depreciation for the second year (20X6) = 15% x £296 000 = £44 400
Carrying value at end of 20X6 = £296 000 - £44 400 = £251 600. Therefore, the carrying amount of the computerized inventory system at 31 December 20X6 is £251 600.

Abbas Runs a Wholesale Confectionery Business