ACCA FR · Chapter 6 · Question 7 of 9
Thrush Co recognised a right-of-use asset of $204,635 for a 5-year lease of a machine with a useful life of 7 years. Ownership does not transfer to Thrush Co at the end of the lease, and there is no purchase option. What is the annual depreciation charge on the right-of-use asset? (Round to the nearest dollar.)
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $40,927
Explanation
If ownership does not transfer and there is no purchase option that is reasonably certain to be exercised, the right-of-use asset is depreciated over the shorter of the lease term and the useful life. That is 5 years: $204,635 / 5 = $40,927. The useful life of 7 years would be used only if ownership was expected to transfer.
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