Very Big Mining Ltd is a large business taxpayer with an aggregated turnover of more than $500 million per year. During the year ended 30 June 2020 the company purchased the following items: 1. Mining truck (effective life of 5 years) on 1 July 2019 for $350,000; 2. Mining equipment on 1 August 2019 for $220,000 (effective life of 8 years) and 3. Mining equipment (effective life of 10 years) on 1 June 2020 for $180,000. Very Big Mining Ltd always uses the diminishing value (DV) method to calculate its decline in value. What decline in value can the company claim for the year ended 30 June 2020?

Question

Quizplus · Accepted Answer

Using the diminishing value method, the decline in value is calculated based on a percentage of the remaining balance of the asset. For the mining truck purchased on 1 July 2019 for $350,000 with an effective life of 5 years, the annual depreciation rate using the DV method is 40% (200% divided by the effective life of 5 years). For the mining equipment purchased on 1 August 2019 for $220,000 with an effective life of 8 years, the annual depreciation rate is 25% (200% divided by 8 years). For the mining equipment purchased on 1 June 2020 for $180,000 with an effective life of 10 years, the depreciation for the first year would be calculated for 1 month only, using a rate of 20% (200% divided by 10 years). Calculating the depreciation for each item and adding them together gives a total decline in value of approximately $139,317 for the year ended 30 June 2020.

Very Big Mining Ltd Is a Large Business Taxpayer with an Aggregated