Methods of Calculating Depreciation - SS1 Accounting Past Questions and Answers - page 1

To calculate the annual depreciation charge using the straight-line method, we need to divide the cost of the machine by its estimated useful life:

Annual depreciation charge = Cost of machine / Estimated useful life

Annual depreciation charge = N500,000 / 10 = N50,000

Therefore, the annual depreciation charge using the straight-line method is N50,000.

To calculate the depreciation charge in the second year using the reducing balance method, we first need to calculate the depreciation rate per year. 

The depreciation rate per year is the percentage of the net book value (cost of the asset minus accumulated depreciation) that will be charged as depreciation each year.

In this case, the depreciation rate is 20%, which means that 20% of the net book value will be charged as depreciation each year.

To calculate the net book value at the beginning of the second year, we need to subtract the accumulated depreciation at the end of the first year from the cost of the vehicle:

Net book value at the beginning of the second year = Cost of vehicle - Accumulated depreciation at the end of the first year

Accumulated depreciation at the end of the first year = 1st year depreciation charge = 20% of N1,200,000 = N240,000

Net book value at the beginning of the second year = N1,200,000 - N240,000 = N960,000

The depreciation charge in the second year is 20% of the net book value at the beginning of the second year:

Depreciation charge in the second year = Depreciation rate x Net book value at the beginning of the second year

Depreciation charge in the second year = 20% x N960,000 = N192,000

Therefore, the depreciation charge in the second year using the reducing balance method with a depreciation rate of 20% is N192,000.