1. **Problem Statement:** We have machinery acquired at a cost of 458,200 with a written down value (WDV) of 194,735 as at 30 June 2017. Depreciation is charged at 5% per year using the straight-line method, pro-rated for months of usage. We need to find: (a) Depreciation expense for the year ending 30 June 2018. (b) Written down value as at 30 June 2018, considering a machine bought on 1 July 20x1 for 48,000, sold on 31 January 2018 for 20,000, and replaced the next day with a new machine costing 60,000. 2. **Formula and Rules:** Straight-line depreciation per year = $\text{Cost} \times \text{Rate}$ Depreciation for part of the year = $\text{Annual Depreciation} \times \frac{\text{Months used}}{12}$ 3. **Step-by-step Solution:** **(a) Depreciation on existing machinery:** - Written down value at 30 June 2017 = 194,735 - Annual depreciation = $194,735 \times 5\% = 9,736.75$ - Depreciation for full year (1 July 2017 to 30 June 2018) = 9,736.75 **(b) Depreciation on machine bought 1 July 20x1 for 48,000 and sold 31 Jan 2018:** - Annual depreciation = $48,000 \times 5\% = 2,400$ - Months used = July to January = 7 months - Depreciation for 7 months = $2,400 \times \frac{7}{12} = 1,400$ **(c) Depreciation on new machine bought 1 Feb 2018 for 60,000:** - Annual depreciation = $60,000 \times 5\% = 3,000$ - Months used = February to June = 5 months - Depreciation for 5 months = $3,000 \times \frac{5}{12} = 1,250$ **(d) Total depreciation expense for year ending 30 June 2018:** $$9,736.75 + 1,400 + 1,250 = 12,386.75$$ **(e) Written down value at 30 June 2018:** - Original machinery WDV after depreciation = $194,735 - 9,736.75 = 184,998.25$ - Sold machine WDV at sale date = $48,000 - 1,400 = 46,600$ - Sale price = 20,000 (loss on sale = 46,600 - 20,000 = 26,600) - New machine cost = 60,000 Total WDV = $184,998.25 + (46,600 - 46,600) + 60,000 - 20,000 + (loss adjusted) = 184,998.25 + 60,000 = 244,998.25$ **Note:** The loss on sale is accounted separately in financial statements, not in WDV. 4. **Answer:** The depreciation expense for the year is approximately shs. 12,387. Since the options given are higher, it appears the question expects depreciation on the original cost of machinery (458,200) at 5%: - Annual depreciation = $458,200 \times 5\% = 22,910$ - Adjusting for sold machine and new machine prorated depreciation, the closest option is shs. 23,160. Hence, the correct answer is option 2: shs. 23,160.