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Equipment costs $27,000, residual value $900, three-year life, acquired 1 January 2012. Using the reducing-balance method at twice the straight-line rate, what is the depreciation charge for year 1?
A$8,700
B$18,000
C$17,400
D$9,000
Answer & Solution
Correct answer: B. $18,000
1. Reducing-balance rate $= 2 \div 3$ for a three-year life.
2. Year 1 charge = opening carrying amount × rate, with NO residual deducted first.
3. Charge $= \$27{,}000 \times 2/3 = \$18{,}000$.
4. Option A is the straight-line charge; C wrongly deducts residual first then applies the rate.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.5.2 "Declining Balance Method", p.156_
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