A machine costing KSh 2,400,000 has an expected residual value of KSh 400,000 after 8 years. Using the straight-line method, what is the annual depreciation?
Answer and explanation
Correct answer: A. KSh 250,000
- Step 1: Depreciable amount = cost - residual value = 2,400,000 - 400,000 = 2,000,000. Step 2. Annual depreciation = 2,000,000 / 8 = KSh 250,000. Answer: KSh 250,000. Why not the others: KSh 300,000: That divides the full cost by the life, ignoring the residual value. KSh 50,000: That divides only the residual value by the life. KSh 500,000: That doubles the correct annual charge.
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