Question

A machine costing $50 000 has an estimated useful lifetime of 20 years and a scrap value of $2000 at that time. Determine the accumulated depreciation and the book value of this asset at the end of 9 years along with the depreciation expense for the 9th year, using

(a) the straight line method

(b) the constant percentage method (you must calculate d)

Answer 1

	Machine cost	$50,000
	Usefull life (In Years)	20
	Scrap Value	$2,000
a)	Straight line method of Deperciation (SLM)
Formula	Depreciation p.a	=	(Machine cost - Scrap value) / Usefull life
(SLM)
	Year	Depreciation	Accumulated Depreciation	Book value at the end of year
	1	$2,400	$2,400	$47,600
	2	$2,400	$4,800	$45,200
	3	$2,400	$7,200	$42,800
	4	$2,400	$9,600	$40,400
	5	$2,400	$12,000	$38,000
	6	$2,400	$14,400	$35,600
	7	$2,400	$16,800	$33,200
	8	$2,400	$19,200	$30,800
	9	$2,400	$21,600	$28,400
b)	Consatnt percentage method
	For caluculating rate of depreciation we have to use below formula
	V(n) = V(0) (1-r) Power'n'
	V(n) = value at the end of nth year
	V(0) = value at the beginning
	r = rate of deopreciation ( we have to find out this in the problem)
	n = usefull life
	After substituting values in the above formula
	$2,000 = $ 50,000 (1 - r/100) Power '20'
	After calculation, we will get 'r' (rate of Depreciation) as 14.86%
	Year	Depreciation @ 14.86 %	Accumulated Depreciation	Book value at the end of year
	1	$7,430	$7,430	$42,570
	2	$6,326	$13,756	$36,244
	3	$5,386	$19,142	$30,858
	4	$4,586	$23,727	$26,273
	5	$3,904	$27,631	$22,369
	6	$3,324	$30,955	$19,045
	7	$2,830	$33,785	$16,215
	8	$2,409	$36,195	$13,805
	9	$2,051	$38,246	$11,754