On 31 December 2018, a new motor vehicle with a useful life of five years and an estimated residual value of $5,000 was purchased by a business at a cost of $25,000. The amount of depreciation expense charged for the six months ended 30 June 2019, using the straight-line method, is:
Question
On 31 December 2018, a new motor vehicle with a useful life of five years and an estimated residual value of 25,000. The amount of depreciation expense charged for the six months ended 30 June 2019, using the straight-line method, is:
Solution
To calculate the depreciation expense using the straight-line method, we first need to determine the depreciable amount of the vehicle. This is done by subtracting the estimated residual value from the cost of the vehicle.
So, the depreciable amount = Cost of the vehicle - Estimated residual value = 5,000 = $20,000
The vehicle has a useful life of 5 years. Therefore, the annual depreciation expense would be the depreciable amount divided by the useful life.
Annual depreciation expense = Depreciable amount / Useful life = 4,000
However, we are asked to find the depreciation expense for the six months ended 30 June 2019. So, we need to calculate the half-year depreciation expense.
Depreciation expense for six months = Annual depreciation expense / 2 = 2,000
Therefore, the amount of depreciation expense charged for the six months ended 30 June 2019 is $2,000.
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