Galway Ltd purchased a computer for $6000,2 years ago.At the beginning of this year the motherboard was replaced to maintain its existing service capacity at a cost of $2000.The improvement to the computer will work only on the existing computer and it does not extend its useful service potential.Galway has been depreciating the equipment using the declining-balance method at a rate of 33%.What is the depreciation charge calculated at the end of the current year (rounded to the nearest dollar)?

Question

Quizplus · Accepted Answer

The current book value of the computer is: 
Book value = Cost - Accumulated depreciation 
Book value = $6000 - (33/100 x $6000 x 2) 
Book value = $6000 - $3960 = $2040

Since the improvement to the computer does not extend its useful service potential, it is considered a repair expense and is not capitalized. Therefore, the cost of the equipment remains at $6000.

The depreciation charge for the current year will be based on the book value of $2040, using the declining-balance method at the rate of 33%: 
Depreciation charge = 33/100 x $2040 
Depreciation charge = $673.20

However, since the question asks for the answer rounded to the nearest dollar, the depreciation charge will be $673.20 rounded to the nearest dollar, which is $673.

Therefore, the correct answer is B) $1549.

Galway Ltd Purchased a Computer for $6000,2 Years Ago