Small Ltd signed a 3-year contract with Big Ltd for the use of a machinery on 1 July 2022 with the option to purchase the machinery at the end of the lease term. It is reasonably expected that Small Ltd will exercise the bargain purchase option. The leased machinery meets the criteria of a leased asset in accordance with AASB16 Leases. The following information shows the lease terms:

Lease term (non-cancellable)	3 years
Expected useful life of the machinery	8 years
Expected residual value of the machinery	$5,000
Residual value guaranteed	$40 000
Expected fair value of the machinery at the end of lease term	$50 000
Bargain purchase price at the end of lease term	$60 000
Net initial directly attributable costs (paid at 1 July 2022)	$10 000
Initial lease payment (paid at 1 July 2022)	$30 000
Annual lease payment (paid in arrears at 30 June)	$80 000
Annual maintenance & insurance included in the annual lease payment	$10 000
Interest rate implicit in the lease	10% p.a.

What is the amount the depreciation expense that Small Ltd should recognize for the year ended 30 June 2023 (rounded to the nearest dollar) in accordance with the requirements of AASB 16 Leases?

Group of answer choices

$31,770

$32,395

$84,720

$26,770