Mike ran a chauffeur driven limousine business and had fixed assets consisting of four cars all bought at the same time with a carrying value of £88000. He reckons these will last three years and then be scrapped. The accumulated depreciation at the start of the year was £44000. Six months into the year one of his drivers wrote off a car and the insurance company paid out £20000 to settle the claim. He replaced the car immediately with a better model costing £39000. His policy as regards depreciation is to use straight line depreciation. What is the charge for the year?
A) £44000
B) £46000
C) £45000
D) None of the above

Question

Quizplus · Accepted Answer

The annual depreciation is £44000/3 = £14666.67 per car. With one car written off halfway through the year, the depreciation for that car is halved to £7333.33. The remaining three cars are depreciated fully, totaling £44000. The new car is depreciated for half a year, adding £6500. The total charge is £7333.33 + £44000 + £6500 = £45000.

Mike Ran a Chauffeur Driven Limousine Business and Had Fixed