Question

Ex.5: A motor vehicle costs $6,400. It will be kept for 5 years, and then sold for scrap $200. Calculate the depreciation for each year using (a) the reducing balance method, using a depreciation rate of 50%, (b) the straight line method.

Answer 1

a Reducing Balance Method Year Depreciation Expenses 3,200 1,600 800 $ 400 200 Working Notes: Cost of Vehicle = $6,400 Depreciation Rate = 50% Depreciation expenses for Year 1 = $6,400*50% = $3,200 Depreciation expenses for Year 2 = $3,200*50% = $1,600 Depreciation expenses for Year 3 = $1,600*50% = $800 Depreciation expenses for Year 4 = $800*50% - $400 Depreciation expenses for Year 5 = $400*50% = $200

b Straight Line Method Year Depreciation Expenses 1,240 1,240 1,240 1,240 1.240 Working Notes: Cost of Vehicle = $6,400 Scrap Value = $200 Useful Life = 5 Years Depreciation = (Cost of Vehicle - Scrap Value)/Useful Life = ($6,400-$200)/5 = $1,240