Using the reducing balance method, the depreciation charged for year 2002 was
Use the following information to answer the given question
\(\begin{array}{c|c} \text{Motor vehicles(at cost) 1/1/2002} & ₦1,000,000\\ \text{Addition to motor vehicles 1/7/2003} & ₦600,000 \\ \text{Depreciation rate 10%} & \end{array}\)
Using the reducing balance method, the depreciation charged for year 2003 was
The reducing balance method is a type of depreciation method where the value of the asset decreases over time by a fixed percentage of the remaining value.
In this case, the depreciation rate is 10%, which means that every year, the value of the asset will decrease by 10% of its remaining value.
To calculate the depreciation charged for year 2002, we need to determine the value of the asset on January 1, 2002. Since we are not given any information about the depreciation charged in 2002, we can assume that the entire depreciation for the year was charged upfront, which means that the value of the asset on January 1, 2002, was the original cost of ₦1,000,000.
To calculate the depreciation charged for year 2003, we need to determine the value of the asset on January 1, 2003. Since we know that the asset was purchased on January 1, 2002, we can assume that the asset was one year old on January 1, 2003. Therefore, its value on that date would be:
Value on January 1, 2003 = Original cost - Depreciation charged in 2002
Value on January 1, 2003 = ₦1,000,000 - ₦100,000 (10% of ₦1,000,000)
Value on January 1, 2003 = ₦900,000
Now, we can calculate the depreciation charged for year 2003 as follows:
Depreciation charged in 2003 = 10% of (Value on January 1, 2003 + Addition to motor vehicles)
Depreciation charged in 2003 = 10% of (₦900,000 + ₦600,000)
Depreciation charged in 2003 = 10% of ₦1,500,000
Depreciation charged in 2003 = ₦150,000
Therefore, the depreciation charged for year 2003 is ₦150,000 (Option B).