Question

Question 3

A motor vehicle was purchased by Robson on 1 January 2020 for £45,000. It has an estimated useful economic life of 5 years
and an estimated residual value of £5,000. What would be the depreciation expense for this asset for the year ending 31
December 2022 using diminishing (reducing) balance depreciation method at 25%.

Answer 1

To calculate the depreciation expense for the year ending December 31, 2022, using the reducing balance method, we need to do the following:

1. Calculate the net book value (NBV) of the asset at the beginning of the year by subtracting the accumulated depreciation from the original cost of the asset:

NBV = Original cost - Accumulated Depreciation

As we don't have information on accumulated depreciation for the year 2022, we will assume that it is zero.

NBV = 45,000 - 0 = 45,000

2. Calculate the depreciation rate:

Depreciation rate = 25%

3. Apply the depreciation rate to the net book value of the asset:

Depreciation expense = NBV x Depreciation rate

Depreciation expense = 45,000 x 0.25 = 11,250

So, the depreciation expense for the asset for the year ending December 31, 2022, is £11,250.