Adekunle Manufacturing Limited acquired a piece of machinery on 1 January 2022 at a cost of ₦18,500,000. The company incurred installation costs of ₦750,000 and a one-year maintenance contract of ₦300,000. The machinery has an estimated useful life of 10 years and a residual value of ₦1,250,000. Using the straight-line method, what is the annual depreciation charge?

Under IAS 16 Property, Plant and Equipment, the cost of an asset comprises its purchase price plus any directly attributable costs of bringing the asset to its working condition and location; installation costs of ₦750,000 qualify but the maintenance contract of ₦300,000 is a revenue expense. Depreciable cost = (₦18,500,000 + ₦750,000) − ₦1,250,000 = ₦18,000,000. Annual straight-line depreciation = ₦18,000,000 ÷ 10 = ₦1,800,000. Option A excludes installation costs, option B ignores residual value, and option D capitalises the maintenance contract in error.