Question

Question no. 1: Huda LLC purchased machinery costing AED54,000 on May 1". 2016. It is estimated that life of the office equipment will be 8 years and its residual value at the end of eighth year will be AED6,000. Accounting year of Huda LLC closes on December 31" each year. This machinery can be used for maximum 60,000 hours. Required: a) Calculate the amount of deprecation for Huda LLC for the year ending on December 31, 2016 by using straight-line depreciation method. (2 marks) b) How machinery will be presented in the statement of financial position (Balance Sheet) as on December 31, 2017 (1 mark)

Answer 1

Ans. A	Straight line depreciation (Annual) = (Cost of asset - Residual value) / Useful life in years
		(AED54,000 - AED6,000) / 8
		AED48,000 / 8
		AED6,000
	*In Straight line method the depreciation is equal in each year.
	In 2016 the machine was used only for 8 months (1 May - 31 Dec.) so the depreciation
	for 2016 will be calculated by the following way:
	Depreciation for 2016 =   AED6,000 * 8 / 12
	AED4,000
Ans. B	In 2017, the machine was used for complete year so the depreciation will be equal to
	annual depreciation (i.e.   AED6,000)
	Accumulated depreciation till 31, Dec. 2017    (AED4,000 + AED6,000)   =   AED10,000
	Huda LLC
	Balance Sheet
	Assets:
	Propery, plant and equipment
	Machinery	AED54,000
	Less: Accumulated depreciation	AED10,000
	Net property, plant and equipment		AED44,000