A vehicle bought for KSh 300,000 is depreciated at 20% per year on the reducing balance method. What is its net book value at the end of year 2?
Answer and explanation
Correct answer: C. KSh 192,000
- Step 1: Year 1 depreciation = 20% x 300,000 = 60,000, so the net book value is 240,000. Step 2. Year 2 depreciation is worked on that reduced balance: 20% x 240,000 = 48,000. Step 3. Net book value = KSh 192,000. Answer: KSh 192,000. Why not the others: KSh 180,000: That takes 20% of the original cost off twice, which is the straight-line method. KSh 240,000: That is the net book value after only one year. KSh 60,000: That is the first year's depreciation charge, not the net book value.
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