Questionyear 3 ? 2) A machine is, purchased af with an expected salvage value of P1,200 at the end of it economic life of 8 years. If money is worth 6\% per annum, determine the book value of the machine at the end of 4 years using double declining balance method.
Studdy Solution
STEP 1
1. The machine is purchased for P10,200.
2. The salvage value at the end of 8 years is P1,200.
3. The economic life of the machine is 8 years.
4. The interest rate is 6% per annum.
5. We need to find the book value after 4 years.
6. We are using the double declining balance method for depreciation.
STEP 2
1. Calculate the depreciation rate.
2. Calculate the book value at the end of each year for 4 years.
3. Present the final book value.
STEP 3
Calculate the depreciation rate: The straight-line depreciation rate would be 1/8 = 0.125 or 12.5% per year. For the double declining balance method, we double this rate: Depreciation rate = 2 × 12.5% = 25% per year
STEP 4
Calculate the book value at the end of each year for 4 years:
Year 0 (Initial value): P10,200
Year 1:
Depreciation = P10,200 × 25% = P2,550
Book value = P10,200 - P2,550 = P7,650
STEP 5
Year 2: Depreciation = P7,650 × 25% = P1,912.50 Book value = P7,650 - P1,912.50 = P5,737.50
STEP 6
Year 3: Depreciation = P5,737.50 × 25% = P1,434.38 Book value = P5,737.50 - P1,434.38 = P4,303.12
STEP 7
Year 4: Depreciation = P4,303.12 × 25% = P1,075.78 Book value = P4,303.12 - P1,075.78 = P3,227.34
STEP 8
Present the final book value: The book value of the machine at the end of 4 years using the double declining balance method is P3,227.34.
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