Question

EPRECIATION AND DEPLETION 187 7-06 (N.E. Boa truck was boug) salvage value Board, September 1971) s bought for P30,000 six years ago. It value of P3,000 four years from now. It Che sunk cost if the deprecia- A dump true for P8,000. What is years ago. It will old now for on method method used is: (a) Straight (b) Sinkin straight-Line methode sinking fund method at 6%?

Answer 1

Sunk cost refers to cost that is already spent on asset which cannot be recovered. To Formula to calculate Sunk cost- Amount spent on purchase of asset- Depreciation on asset There are different method to calculate depreciation. Basis the depreciation method used, the sunk cost will change

Straight line method Depreciation= (Purchase price-salvage value after end of useful life of asset)/ Useful life of asset Purchase price- Salvage value- Useful life- P 30,000 P 3000 10Yrs (6yrs are already gone + 4yrs) Depreciation= (30000-3000) 10 27000 10 = P 2700 Therefore Sunk cost= 30000-2700 27300

(b) Sinking fund method at 6% Formula for depreciation= (1+i)" - 1 0.06 (1+0.06)0 - 1 0.06 (1.06) - 1 0.06 0.4185 0.1434

Depreciation= (30,000-8000) *0.1434 3154.8 Sunk cost = Purchase price- Dep 30,000-3155 = 26845