Use the following information to answer this question. Cost of assets (01/01/18) ₦ 600,000. Annual depreciation charge is 15% on reducing balance basis. The...
Question 1 Report
Use the following information to answer this question.
Cost of assets (01/01/18) ₦ 600,000. Annual depreciation charge is 15% on reducing balance basis.
The net book value of the asset at 31/12/19 is
Answer Details
Depreciation is a method of accounting that allocates the cost of an asset over its useful life, reflecting its gradual decrease in value. The reducing balance method calculates the depreciation charge based on the declining net book value of an asset.
For the given scenario, the net book value at the end of the first year (31/12/18) can be calculated as follows:
Cost of asset: ₦600,000
Depreciation charge for the first year: ₦600,000 * 15% = ₦90,000
Net book value at 31/12/18: ₦600,000 - ₦90,000 = ₦510,000
Next, we can calculate the net book value at the end of the second year (31/12/19) as follows:
Cost of asset: ₦510,000
Depreciation charge for the second year: ₦510,000 * 15% = ₦76,500
Net book value at 31/12/19: ₦510,000 - ₦76,500 = ₦433,500
So, the net book value of the asset at 31/12/19 is ₦433,500.
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