(a) Define the terms ‘depreciation’, ‘depreciable amount’, ‘useful life and residual value’. 

(b) On 1 July 2008, an entity which prepares financial statements to 30 June each year acquires an item of equipment at a cost of EUR 119,000. The item’s useful life is expected to be five years with a residual value of EUR 20,000. Calculate depreciation charges for each of the five years of the item’s useful life, using:

How should the entity choose between these methods?  

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0 the straight-line the diminishing method; balance method (at a rate of 30 per cent).