To calculate the depreciation charge and book value using different methods, we need to understand each depreciation method and its formula. Let's go through each method and calculate the values:
(a) Declining-balance method:
The declining-balance method uses a fixed percentage to calculate depreciation. The formula is:
Depreciation expense = Net book value at the beginning of the year * Depreciation rate
Book value at the end of the year = Net book value at the beginning of the year - Depreciation expense
To calculate the depreciation charge during the 4th year, we need to determine the depreciation rate. The formula for the declining-balance method is:
Depreciation rate = (1 / Useful life) * 2
Given:
Purchase cost = P240,000
Other expenses = P25,000
Salvage value = P35,000
Useful life = 11 years
Net book value at the beginning of the 4th year:
Net book value at the beginning of the 4th year = (Purchase cost + Other expenses) - Accumulated depreciation for the previous 3 years
Accumulated depreciation for the previous 3 years = Depreciation expense for Year 1 + Depreciation expense for Year 2 + Depreciation expense for Year 3
Now, we can calculate the depreciation charge during the 4th year using the declining-balance method.
(b) Straight-line method:
The straight-line method evenly distributes the depreciation expense over the useful life of the asset. The formula is:
Depreciation expense = (Purchase cost - Salvage value) / Useful life
To calculate the depreciation charge during the 4th year, we can use the depreciation expense formula directly.
(c) Sinking fund method with i = 13%:
The sinking fund method calculates a fixed amount to be invested annually to accumulate the desired salvage value at the end of the useful life. The formula is:
Annual deposit = (Desired salvage value - Accumulated depreciation) * (i / (1 + i)^n - 1)
To calculate the depreciation charge during the 4th year, we need to calculate the accumulated depreciation for the previous 3 years and then use the sinking fund method formula.
(d) Double declining-balance method:
The double declining-balance method uses a fixed percentage (usually double the straight-line rate) to calculate depreciation. The formula is:
Depreciation expense = Net book value at the beginning of the year * Depreciation rate
To calculate the depreciation charge during the 4th year, we need to determine the depreciation rate and then use the double declining-balance method formula.
(e) Sum-of-the-years'-digits (SYD) method:
The SYD method assigns more depreciation in the earlier years and less in the later years. The formula is:
Depreciation expense = (Remaining useful life / Sum of the years' digits) * (Purchase cost - Accumulated depreciation)
To calculate the depreciation charge during the 4th year, we need to calculate the accumulated depreciation for the previous 3 years and then use the SYD method formula.
Now, let's calculate the depreciation charge and book value at the end of the 7th year for each method.
PH