Newsome Company purchased equipment for $105 000 on 1 January 2018 with an estimated life of 8 years and a residual value of $5 000. The straight-line method of depreciation is used. What is the carrying amount of the equipment in the balance sheet of Newsome Company at 30 June 2019?

Question

Quizplus · Accepted Answer

First, we need to calculate the annual depreciation expense:
Depreciation expense = (cost - residual value) / useful life
Depreciation expense = ($105,000 - $5,000) / 8 = $12,500 per year

Next, we need to find the accumulated depreciation as of 30 June 2019:
Accumulated depreciation = depreciation expense * number of years
Accumulated depreciation = $12,500 * 1.5 (since it is 1.5 years since the equipment was purchased on 1 January 2018) = $18,750

Finally, we can calculate the carrying amount (i.e. net book value) of the equipment:
Carrying amount = cost - accumulated depreciation
Carrying amount = $105,000 - $18,750 = $86,250

Therefore, the answer is C, $81,250.

Newsome Company Purchased Equipment for $105 000 on 1 January