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If a company purchases equipment for R300 000 with a residual value of R30 000 and a useful life of 3 years, the annual straight-line depreciation is R90 000.

Economics

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Answer

True\text{True}

Step-by-step solution

4 steps

  1. Recall the formula for straight-line depreciation.

    The straight-line depreciation method allocates an equal amount of depreciation expense to each full period of an asset's useful life.

    Annual Depreciation=Cost of Asset−Residual ValueUseful Life\text{Annual Depreciation} = \frac{\text{Cost of Asset} - \text{Residual Value}}{\text{Useful Life}}

  2. Identify the given values from the problem.

    • Cost of Asset = R300 000
    • Residual Value = R30 000
    • Useful Life = 3 years

  3. Substitute the values into the formula and calculate the annual depreciation.

    Annual Depreciation=R300 000−R30 0003 years\text{Annual Depreciation} = \frac{\text{R}300\,000 - \text{R}30\,000}{3 \text{ years}} Annual Depreciation=R270 0003 years\text{Annual Depreciation} = \frac{\text{R}270\,000}{3 \text{ years}} Annual Depreciation=R90 000 per year\text{Annual Depreciation} = \text{R}90\,000 \text{ per year}

  4. Compare the calculated annual depreciation with the statement.

    The calculated annual straight-line depreciation is R90 000, which matches the amount stated in the problem.

    The statement is True.

    True

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