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    Analysis of Financial Statements-Assignment

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    aimen.zulfiqar21
    Question 1: An item of equipment acquired on January 1 at a cost of Rs 300,000 has an estimated life of 10 years. Assuming that the equipment will have a salvage value of Rs 20,000, determine the depreciation for each of the first three years by the: Straight-line method, Declining-balance method, and Sum-of-the-years’-digits method? Question 2: An item of equipment acquired on January 1 at a cost of Rs 100,000 has an estimated use of 35,000 hours. During the first three years, the .....

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    Analysis of Financial Statements-Assignment

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    aimen.zulfiqar21
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    Question 1: An item of equipment acquired on January 1 at a cost of Rs 300,000 has an estimated life of 10 years. Assuming that the equipment will have a salvage value of Rs 20,000, determine the depreciation for each of the first three years by the: Straight-line method, Declining-balance method, and Sum-of-the-years’-digits method? Question 2: An item of equipment acquired on January 1 at a cost of Rs 100,000 has an estimated use of 35,000 hours. During the first three years, the .....

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    Analysis Of Financial Statements-Assignment

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    Question 1: An item of equipment acquired on January 1 at a cost of Rs 300,000 has an estimated life of 10 years. Assuming that the equipment will have a salvage value of Rs 20,000, determine the depreciation for each of the first three years by the: Straight-line method, Declining-balance method, and Sum-of-the-years’-digits method? Question 2: An item of equipment acquired on January 1 at a cost of Rs 100,000 has an estimated use of 35,000 hours. During the first three years, the .....

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    5 views3 pages

    Analysis of Financial Statements-Assignment

    Uploaded by

    aimen.zulfiqar21
    Question 1: An item of equipment acquired on January 1 at a cost of Rs 300,000 has an estimated life of 10 years. Assuming that the equipment will have a salvage value of Rs 20,000, determine the depreciation for each of the first three years by the: Straight-line method, Declining-balance method, and Sum-of-the-years’-digits method? Question 2: An item of equipment acquired on January 1 at a cost of Rs 100,000 has an estimated use of 35,000 hours. During the first three years, the .....

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Question 1:

    An item of equipment acquired on January 1 at a cost of Rs 300,000 has an estimated life of 10


    years. Assuming that the equipment will have a salvage value of Rs 20,000, determine the
    depreciation for each of the first three years by the: Straight-line method, Declining-balance
    method, and Sum-of-the-years’-digits method?

    Solution:

    Cost of equipment= Rs 300,000

    Useful life = 10 years

    Salvage value = Rs 20,000

    Straight-Line method:

    Rate of depreciation = 1/n *100


    = 1/10 * 100
    = 10% or 0.1

    Depreciable value = (Cost – Salvage Value)

    = Rs 300,000 – Rs 20,000
    = Rs 280,000

    Depreciation Amount = Depreciable value * Rate of depreciation

    = 280,000 * 0.1
    = Rs 28,000

    Years Book Amount at Depreciation for Accumulated Book Amount at


    Beginning of Year Depreciation at End End of Year
    Year of Year
    1 300,000 28,000 28,000 272,000
    2 272,000 28,000 56,000 244,000
    3 244,000 28,000 84,000 216,000
    4 216,000 28,000 112,000 188,000
    5 188,000 28,000 140,000 160,000
    6 160,000 28,000 168,000 132,000
    7 132,000 28,000 196,000 104,000
    8 104,000 28,000 224,000 76,000
    9 76,000 28,000 252,000 48,000
    10 48,000 28,000 280,000 20,000
    Double Declining Depreciation Method:

    Rate of depreciation = [1/𝑛∗ 100] * 2


    = (1/10 * 100) * 2
    = (10%) * 2
    = 20% or 0.2

    Depreciation Amount = Current year’s book value * Rate of depreciation

    Years Book Amount at Depreciation for Accumulated Book Amount at


    Beginning of Year Depreciation at End End of Year
    Year of Year
    1 300,000 60,000 60,000 240,000
    2 240,000 48,000 108,000 192,000
    3 192,000 38,400 146,400 153,600
    4 153,600 30,720 177,120 122,880
    5 122,880 24,576 201,696 98,304
    6 98,304 19,661 221,357 78,643
    7 78,643 15,729 237,085 62,915
    8 62,915 12,583 249,668 50,332
    9 50,332 10,066 259,735 40,265
    10 40,265 20,265 280,000 20,000

    Sum of Year Digits Method:

    Depreciation expense = (remaining useful life of the assets/sum of years digits) *depreciable cost

    For the first year = (10/(1+2+3+4+5+6+7+8+9+10)) * 280,000


    = (10/ 55) * 280,000
    = Rs 50,909

    Years Book Amount Depreciation for Accumulated Book Amount at End


    at Beginning of Year Depreciation at End of Year
    Year of Year
    1 300,000 50,909 50,909 249,091
    2 249,091 45,818 96,727 203,273
    3 203,273 40,727 137,455 162,545
    4 162,545 35,636 173,091 126,909
    5 126,909 30,545 203,636 96,364
    6 96,364 25,455 229,091 70,909
    7 70,909 20,364 249,455 50,545
    8 50,545 15,273 264,727 35,273
    9 35,273 10,182 274,909 25,091
    10 25,091 5,091 280,000 20,000
    Question 2:

    An item of equipment acquired on January 1 at a cost of Rs 100,000 has an estimated use of


    35,000 hours. During the first three years, the equipment was used 7,000 hours, 9,000 hours, and
    6,000 hours, respectively. The estimated salvage value of the equipment is Rs 0. Determine the
    depreciation for each of the three years, using the unit-of-production method.

    Solution:

    Cost of equipment = Rs 100,000

    Estimated useful life = 35,000 hours

    Salvage value = Rs 0

    Depreciable Value = (Cost – Salvage Value)

    = (Rs 100,000 - Rs 0)
    = Rs 100,000

    Annual Depreciation = 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑏𝑙𝑒 𝑉𝑎𝑙𝑢𝑒 × (𝑈𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 / 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑

    𝑡𝑜𝑡𝑎𝑙 𝑢𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑)

    Years Book Amount no. of units Depreciation for Accumulated Book Amount at
    at Beginning of produced Year Depreciation at End of Year
    Year End of Year
    1 100,000 7,000 20,000 20,000 80,000
    2 80,000 9,000 25,714 45,714 54,286
    3 54,286 6,000 17,143 62,857 37,143

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