Accounting Online Program Certification Practice Test

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Prepare for the Accounting Online Program Certification Test. Use flashcards and multiple choice questions with detailed explanations. Ace your accounting certification exam with confidence!

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What is the annual depreciation rate on plant and equipment charged by Redruth plc?

The correct answer is: 25%

To determine the annual depreciation rate charged by Redruth plc on its plant and equipment, it's essential to understand the general practices in accounting for depreciation. Companies typically choose a depreciation method that reflects how the asset's value decreases over time, with common rates being around 20%, 25%, 30%, or 40%, as indicated by the options. The selected rate of 25% suggests that Redruth plc is following a straight-line or declining balance method, allowing for a systematic allocation of the asset's cost over its useful life. This means that each accounting period, they would deduct a quarter of the asset's value, which balances the expense recognition with the asset's usage in generating revenue. Choosing a 25% rate can also be aligned with industry standards where the plant and equipment have significant long-term use but may not completely lose their value swiftly, unlike higher rates that imply rapid obsolescence or loss of value. Thus, the selection of this rate communicates a balanced approach to accounting for the asset's longevity while still recognizing the need to account for wear and tear realistically.