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O Level Accounting (7707)•7707/12/M/J/25
Question 15 from 7707/12/M/J/25

Explanation

Net book value of equipment after two years' depreciation Steps:

  • Depreciable amount = 20,000cost−20,000 cost - 20,000cost−10,000 residual = $10,000
  • Annual depreciation = 10,000÷5years=10,000 ÷ 5 years = 10,000÷5years=2,000
  • Accumulated depreciation for 2023–2024 = 2,000×2years=2,000 × 2 years = 2,000×2years=4,000
  • Net book value = 20,000−20,000 - 20,000−4,000 = $16,000

Why C is correct:

  • Straight-line method formula for carrying amount is cost minus (depreciable base ÷ useful life × years used), yielding $16,000 as the equipment's balance net of provision.

Why the others are wrong:

  • A: Accumulated depreciation ignoring residual (20,000÷5×2=20,000 ÷ 5 × 2 = 20,000÷5×2=8,000), understating net value.
  • B: Equals residual value, ignoring two years' depreciation.
  • D: Original cost, before applying any depreciation.

Final answer: C

Topic: Accounting for depreciation and disposal of non-current assets

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