Mighty Models acquired a machine for $20 000 on 31 December 2018. Calculate depreciation for the year ended 31 December 2020 using the diminishing-balance method at 12% p.a. Assume a nil residual value.

Question

Quizplus · Accepted Answer

The diminishing-balance method calculates depreciation as a percentage of the net book value (cost − accumulated depreciation). The rate is double the straight-line rate, which is 12% p.a. in this instance, so the diminishing-balance rate is 24% (12% × 2).

Depreciation for 2019 = $20,000 x 24% = $4,800
Accumulated depreciation at 31 December 2019 = $4,800
Net book value at 31 December 2019 = $20,000 - $4,800 = $15,200

Depreciation for 2020 = $15,200 x 24% = $3,648
Total accumulated depreciation at 31 December 2020 = $4,800 + $3,648 = $8,448

Therefore, the answer is C ($2,112)

Mighty Models Acquired a Machine for $20 000 on 31