Destiny Ltd acquired equipment under a finance lease. The value of the equipment is GHS500,000. The amount is broken into principal repayment of GHS400,000 and interest cost of GHS100,000. The repayment period is five (5) years; Principal (per annum) - GHS80,000; interest cost (per annum) - GHS20,000. The commencement period is January 2020. What will be the written down value as at the end of the 2020 year of assessment? A. GH¢54,000 B. GH¢64,000 C. GH¢400,000 D. GH¢74,000
Question
Destiny Ltd acquired equipment under a finance lease. The value of the equipment is GHS500,000. The amount is broken into principal repayment of GHS400,000 and interest cost of GHS100,000. The repayment period is five (5) years; Principal (per annum) - GHS80,000; interest cost (per annum) - GHS20,000. The commencement period is January 2020. What will be the written down value as at the end of the 2020 year of assessment? A. GH¢54,000 B. GH¢64,000 C. GH¢400,000 D. GH¢74,000
Solution
To calculate the written down value of the equipment at the end of the 2020 year of assessment, we need to consider the principal repayment and the depreciation.
The principal repayment per annum is GHS80,000, and the interest cost per annum is GHS20,000. Therefore, the total annual payment is GHS100,000.
Since the repayment period is five years, the total repayment over the five years would be GHS100,000 multiplied by 5, which equals GHS500,000.
The value of the equipment is GHS500,000, and the principal repayment is GHS400,000. Therefore, the depreciation for the first year would be GHS500,000 minus GHS400,000, which equals GHS100,000.
The written down value at the end of the 2020 year of assessment would be the value of the equipment minus the depreciation for the first year. Therefore, the written down value would be GHS500,000 minus GHS100,000, which equals GHS400,000.
Therefore, the correct answer is C. GH¢400,000.
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