Question

Theo purchased a truck for $67,000 to use in his business. The truck was purchased on 1 September 2017. The truck is used only for business purposes and Theo is not using the Small Business Entity method of depreciation. The effective life of the truck at the time of its acquisition was seven years. The accountant has advised that he should use the diminishing value method when calculating his depreciation claim.

Required A:  

Advise Theo how much he can claim for depreciation for the year ended 30 June 2018.

In your response give reasons and refer to sections of legislation and cases, where relevant.

Answer 1

Solution:

Under Division 40 items , Depreciation can be calculated using diminishing value method, The depreciation rate is determined by the life of an asset

Purchase Price of Truck = $67,000

Diminishing value method

Depreciation rate = 1/Useful life of an asset *2 = 1/7*2 = 28.57%

Depreciation expense for the year ended 30 June 2018 , for 10 months

$67,000*28.57%*10/12 = $15,952

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