Accounting Certification Practice Test 2025 – Complete Online Preparation

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.