4th Week : DEPRECIATION SCHEDULE
Our topic for this week is about Depreciation. This
talks about the lost value of physical assets or it refers to the decline in
the value of an article, equipment, building or property due to wear and tear,
or due to obsolescence.
A car, for example, decreases in
value with the passing of time. Although repairs and replacements of some parts
may, from time to time, help its operating efficiency, time will come when it
is so worn out that it it’s the interest of economy to have it sold out or
traded in.
Sample Problem:
A person who* buys a 42,000
bantam car can trade it in four 18,000 four years later. The total
depreciation, in this case, is 24,000. Spreading the total depreciation
uniformly over 4 years , the yearly depreciation would be 6,000. This is so
called straight-line method of arriving at the annual depreciation. The
formula is:
Yearly Depreciation = Original
Cost – Scrap (or resale) value
No.
of years of estimated life
The rate of
depreciation, if desired, is ordinarily computed thus:
Rate of Depreciation = Yearly
Depreciation
Original
Cost
Businessmen, in
figuring out their net profit for the year, often include the amount of depreciation
* of their equipment, building, furniture, etc. in their list of operating
expenses, and these are deducted from their gross profit.
The yearly deposits
into the depreciation fund are called depreciation
charges. The depreciation fund is
the portions of a given amount at the end of its useful life or the difference
between the original cost of the asset and the sum in the depreciation fund is
called the book value of the asset.
At the end of the year.
Example:
A brand new
phone was bought costing 9500 *pesos and has a usability for 4 years and it has
a scrap value of 1500 (a) fine the average yearly depreciation. (b) prepare a
depreciation scgedule showing the book from year to year.
SOLUTION
(a) the total
depreciation is
Depreciation = Cost – Scrap Value
= 9500 –1500 = 8000
= 9500 –1500 = 8000
The average
yearly depreciation is
8000/8 = 1000
(b) the depreciation
increases 1000 / year and the book value of the assets decreases by that sum
each year. The depreciation schedule is shown as follows:
Year
|
Depreciation Charge
|
Amount in Depreciation Fund
|
Book Value at the End of the Year
|
0
|
0
|
0
|
9500
|
1
|
1000
|
1000
|
8500
|
2
|
1000
|
2000
|
7500
|
3
|
1000
|
3000
|
6500
|
4
|
1000
|
4000
|
5500
|
5
|
1000
|
5000
|
4500
|
6
|
1000
|
6000
|
3500
|
7
|
1000
|
7000
|
2500
|
8
|
1000
|
8000
|
1500
|
Example 2
A machine which costs 20,000 has an estimated
scrap value of 4000 and a probable life of 40,000 hours (a) find the
depreciation charge per operating hour. (b) prepare a depreciation schedule
showing the book value for each of the 4 years of the machine’s life during
which the hours of operation were: 10,000, 9000, 12000, 15,000.
SOLUTION
The total depreciation is
Depreciation = Cost – Scrap Value
= 20,000 – 4000 = 16000
Then the charge
per operating hour is
16000/ 40000 = 0.40/hour
YEARS
|
HOURS OF
OPERATION
|
DEPRECIATION
CHARGE
|
AMOUNT IN
DEPRECIATION FUND
|
BOOK VALUE AT
END OF YEAR
|
0
|
0
|
0
|
0
|
20000
|
1
|
10000
|
10000(0.4)=4000
|
4000
|
16000
|
2
|
9000
|
9000 (O.4) =
3600
|
7600
|
12400
|
3
|
12000
|
12000 (0.4) =
4800
|
12400
|
7600
|
4
|
9000
|
9000 (O.4) =
3600
|
16000
|
4000
|
Total
|
40000
|
16000
|
Despite of this DEPRESSiation topic , rather
Depreciation. Here are some tips to be a millionare:
Your Mind
Should always think like this: A MILLIONARE’S MINDSET!
1) I am a
superb money magnet.
2) I manage all
my income with ease
3) I take
consistent yet, massive actions to increase my total net worth
4)money flows
to me endlessly regardless of where I am and what I am doing
5) My ability
to earn and invest money increases exponentially
6) I become
rich by adding values to other people’s life.
No comments:
Post a Comment