A vehicle cost £25,000 and is depreciated at 30% per year on the reducing balance method. What is the depreciation charge in the third year?
Answer and explanation
Correct answer: C. £3,675
- Step 1: Year 1: 30% × £25,000 = £7,500; net book value (NBV) £17,500.
- Step 2: Year 2: 30% × £17,500 = £5,250; NBV £12,250.
- Step 3: Year 3: 30% × £12,250 = £3,675.
Answer
£3,675.
Why not the others: £7,500: This is the charge on original cost for any single year, which is the straight-line method. £5,250: This is the charge for the second year, not the third. £2,572: This calculates the charge for the fourth year because it reduces cost by three years of depreciation first.
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