Tom buys machinery costing £66,000 for use within his business on 1 October 2018. Tom's financial year end is 31 December each year. Tom estimates that the machinery will have a useful life of 5 years and a residual value of £6,000. Tom uses the straight line basis of depreciation to allocate the cost of non-current assets to his statement of profit or loss and charges depreciation on a monthly basis. How much depreciation will have been charged on this machinery by 31 December 2020?

Question

Quizplus · Accepted Answer

The annual depreciation is calculated as (£66,000 - £6,000) / 5 = £12,000. From 1 October 2018 to 31 December 2020 is 2 years and 3 months, or 27 months. Monthly depreciation is £12,000 / 12 = £1,000. Therefore, total depreciation charged by 31 December 2020 is 27 months * £1,000 = £27,000.

Tom Buys Machinery Costing £66,000 for Use Within His Business