29. Suppose a company purchases a van for £21,000 with the intention of using it for three years and selling it for £6,000 at the end of the three years. The company uses straight line depreciation. Which of the following statements is correct?

A. The annual depreciation charge is £7,000

B. The annual depreciation charge is £21,000

C. The annual depreciation charge is £5,000

D. The annual depreciation charge is £15,000

Answer : C

Depreciation (simplified, straight line method) is the total cost of the asset over it’s useful economic life, divided by the number of years of use. The van costs £21,000 but will be sold for £6,000 and therefore costs only £15,000 over the three years. £15,000 over three years is £5,000 per year.