Example problem on declining balance method of depreciation
Example problem on declining balance method of depreciation -1
A
company has purchased an equipment whose first cost is Rs. 2,00,000 with an
estimated life of eight years. The estimated salvage value of the equipment at
the end of its lifetime is Rs. 24,000. Determine the depreciation charge and
book value at the end of various years using the declining balance method of
depreciation by assuming K = 0.2.
Given data
Purchase
price, P = ₹. 2,00,000
Salvage
value, F = ₹. 24,000
Life
of an asset, n = 8 years
K
= 0.2
Formula used
Dt = K * Bt–1
Bt
= Bt–1 –
Dt
Solution
End of Year
|
Depreciation (Dt
= K * Bt–1)
in ₹
|
Book Value (Bt = Bt–1 –
Dt)
in ₹
|
1
|
2,00,000
|
|
2
|
40,000
|
1,60,000
|
3
|
32,000
|
1,28,000
|
4
|
25,600
|
1,02,400
|
5
|
20,480
|
81,920
|
6
|
16,384
|
65,536
|
7
|
13,107.2
|
52428.80
|
8
|
10485.76
|
41943.04
|
Example problem on declining
balance method of depreciation -2
A
company has purchased an equipment whose first cost is Rs. 2,00,000 with an
estimated life of eight years. The estimated salvage value of the equipment at
the end of its lifetime is Rs. 24,000. Determine the depreciation charge and
book value at the end of 5th year using the declining balance method of
depreciation by assuming K = 0.2.
Given data
Purchase
price, P = ₹. 2,00,000
Salvage
value, F = ₹. 24,000
Life
of an asset, n = 8 years
t
= 5
K
= 0.2
Formula used
Dt = K * (1-K)t –1 * P
Bt
= (1-K)t * P
Solution
D5 =
0.2 * (1-0.2)5–1 * 2,00,000
=
₹. 16,384
B5 =
(1-0.2)5 * 2,00,000
=
₹. 65,536
Result
At
the end of 5th year,
Depreciation charge = ₹. 16,384
Book value = ₹. 65,536
