A machine costing KSh 450,000 has an expected residual value of KSh 30,000 after 7 years. Using the straight-line method, what is the annual depreciation?
Answer and explanation
Correct answer: C. KSh 60,000
- Step 1: Depreciable amount = cost - residual value = 450,000 - 30,000 = 420,000. Step 2. Annual depreciation = 420,000 / 7 = KSh 60,000. Answer: KSh 60,000. Why not the others: KSh 64,285.71: That divides the full cost by the life, ignoring the residual value. KSh 4,285.71: That divides only the residual value by the life. KSh 120,000: That doubles the correct annual charge.
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