A machine costing KSh 950,000 has an expected residual value of KSh 150,000 after 4 years. Using the straight-line method, what is the annual depreciation?
Answer and explanation
Correct answer: B. KSh 200,000
- Step 1: Depreciable amount = cost - residual value = 950,000 - 150,000 = 800,000. Step 2. Annual depreciation = 800,000 / 4 = KSh 200,000. Answer: KSh 200,000. Why not the others: KSh 237,500: That divides the full cost by the life, ignoring the residual value. KSh 37,500: That divides only the residual value by the life. KSh 400,000: That doubles the correct annual charge.
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