A machine costing KSh 600,000 has an expected residual value of KSh 60,000 after 6 years. Using the straight-line method, what is the annual depreciation?
Answer and explanation
Correct answer: D. KSh 90,000
- Step 1: Depreciable amount = cost - residual value = 600,000 - 60,000 = 540,000. Step 2. Annual depreciation = 540,000 / 6 = KSh 90,000. Answer: KSh 90,000. Why not the others: KSh 100,000: That divides the full cost by the life, ignoring the residual value. KSh 10,000: That divides only the residual value by the life. KSh 180,000: That doubles the correct annual charge.
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