G2 STORAGE purchased a machine for R6,000 cash. It has a useful life of 4 years and a residual value of R1,200. Calculate (a) the annual depreciation using the straight-line method, and (b) show the depreciation and accumulated depreciation ledger accounts.

What you are being asked to do

You have the cost of the machine, its residual (scrap) value, and how long it will be used. From that, you calculate a fixed yearly depreciation amount under straight-line, then record it in the ledger accounts.

(a) Straight-line depreciation calculation

Straight-line method spreads the depreciable amount evenly over the useful life.

Depreciable amount: $$\text{Depreciable amount} = \text{Cost} - \text{Residual value} = R6,000 - R1,200 = R4,800$$

Annual depreciation charge: $$\text{Annual depreciation} = \frac{\text{Cost} - \text{Residual value}}{\text{Useful life}} = \frac{R4,800}{4} = R1,200$$

So, the annual depreciation is R1,200 per year.

(b) Ledger accounts (Depreciation and Accumulated Depreciation)

Each year you record the depreciation expense and increase accumulated depreciation.

Yearly journal entry:

• Debit: Depreciation Expense (Machinery) $R1,200$
• Credit: Accumulated Depreciation (Machinery) $R1,200$

Depreciation Expense (Machinery)

Accumulated Depreciation (Machinery)

Quick check after 4 years

Total accumulated depreciation: $$R1,200 \times 4 = R4,800$$

Carrying amount at end of year 4: $$\text{Carrying amount} = R6,000 - R4,800 = R1,200$$ This matches the residual value, which is what straight-line depreciation is designed to do.