On October 1, 2018, Ming Wo Ltd. places a new asset into service. The cost of the asset is $16,000 with an estimated 5-year life and $4,000 residual value. If Ming Wo uses straight-line depreciation, the depreciation expense for the year ended January 31, 2019 is
A) $ 600.
B) $ 800.
C) $1,067.
D) $2,400.

Question

Quizplus · Accepted Answer

The annual depreciation expense is calculated as (Cost - Residual Value) / Useful Life = ($16,000 - $4,000) / 5 = $2,400. For the period from October 1, 2018, to January 31, 2019, which is 4 months, the depreciation expense is ($2,400 / 12) * 4 = $800.