An equipment costing ₦9,000 has an estimated residual value of ₦900, and is depreciated at 10% per annum.Using the straight- line method, what is the…

Explanation

Using the straight-line method, depreciation is the same amount each year. The formula is: (Cost – Residual Value) ÷ Useful Life.

From the data: Cost = ₦9,000. Residual Value = ₦900. Depreciation Rate = 10%, which means Useful Life = 10 years.

Calculation: (₦9,000 – ₦900) ÷ 10 = ₦8,100 ÷ 10 = ₦810 per year.

Under the straight-line method, the depreciation charge is the same for every year of the asset’s life. So the depreciation for year two is the same as year one, year three, and so on – always ₦810. This differs from the reducing balance method where depreciation changes each year. The residual value is subtracted because it represents what the asset will be worth at the end of its useful life.