If a sole trader purchases equipment for $5,000 and expects it to last 5 years w

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Question: If a sole trader purchases equipment for $5,000 and expects it to last 5 years with no salvage value, what is the annual depreciation using straight-line method?

Options:

$1,000
$500
$2,500
$1,500

Correct Answer: $1,000

Solution:

Annual depreciation using the straight-line method is calculated as Cost divided by Useful Life, which is $5,000 / 5 = $1,000.

If a sole trader purchases equipment for $5,000 and expects it to last 5 years w

Practice Questions

If a sole trader purchases equipment for $5,000 and expects it to last 5 years with no salvage value, what is the annual depreciation using straight-line method?

$1,000
$500
$2,500
$1,500

Questions & Step-by-Step Solutions

If a sole trader purchases equipment for $5,000 and expects it to last 5 years with no salvage value, what is the annual depreciation using straight-line method?

Step 1: Identify the total cost of the equipment. In this case, it is $5,000.
Step 2: Determine the useful life of the equipment. Here, it is 5 years.
Step 3: Understand that the straight-line method of depreciation means you will spread the cost evenly over the useful life.
Step 4: Use the formula for annual depreciation: Annual Depreciation = Cost / Useful Life.
Step 5: Plug in the numbers: Annual Depreciation = $5,000 / 5.
Step 6: Calculate the result: $5,000 divided by 5 equals $1,000.
Step 7: Conclude that the annual depreciation is $1,000.

Straight-Line Depreciation – A method of allocating the cost of a tangible asset over its useful life evenly.
Cost and Useful Life – Understanding the initial cost of an asset and its expected duration of use.
Salvage Value – The estimated residual value of an asset at the end of its useful life, which in this case is zero.

If a sole trader purchases equipment for $5,000 and expects it to last 5 years w

What’s inside this PDF?

If a sole trader purchases equipment for $5,000 and expects it to last 5 years w

Practice Questions

Questions & Step-by-Step Solutions

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