A Level Accounting (9706)•9706/12/M/J/19
Explanation
Reducing Balance Depreciation Formula
Steps:
- Let P be the purchase price.
- After year 1, book value = P × (1 - 0.4) = P × 0.6.
- After year 2, book value = P × 0.6 × 0.6 = P × 0.36.
- Solve P × 0.36 = 3600, so P = 3600 / 0.36 = 10000.
Why C is correct:
- 3600, matching the reducing balance formula where value = initial × (1 - rate)^years.
Why the others are wrong:
- A: 2702, under $3600.
- B: 2238, under $3600.
- D: 900, under $3600.
Final answer: C
Topic: Accounting for non-current assets
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