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Equipment costs $27,000, residual $900, three-year life, bought 1 January 2012. Under reducing balance at 2/3, what is the depreciation charge for year 2?
A$18,000
B$6,000
C$9,000
D$5,400
Answer & Solution
Correct answer: B. $6,000
1. Year 1 charge $= \$27{,}000 \times 2/3 = \$18{,}000$.
2. Carrying amount start of year 2 $= \$27{,}000 - \$18{,}000 = \$9{,}000$.
3. Year 2 charge = carrying amount × rate $= \$9{,}000 \times 2/3 = \$6{,}000$.
4. Option C is the year-2 opening carrying amount, not the charge; D applies the rate to residual-adjusted figures.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.5.2 "Declining Balance Method", p.157_
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