A machine costs $300,000 with a salvage value of P50,000 at the end of its life of 10 years. If money is worth 6% annually, use Sinking Fund Method and tabulate the annual depreciation and book value.
Sinking fund method is one of the method of depreciation under which the funds would be accumulated for purpose of replacement.
Computing annual depreciation as:
$\begin{array}{rcl}Annualdepreciation\left(A\right)& =& \frac{\left[\right(FC-SV)(i\left)\right]}{\left[\right(1+i{)}^{n})-1]}\\ & =& \frac{\left[\right(300,000-50,000)(0.06\left)\right]}{\left[\right(1+0.06)-1]}\\ & =& Php18,966.9856\\ & & \\ & & \end{array}$
Year | Total depreciation $\left[\frac{A\{{(1+i)}^{n}-1\}}{i}\right]$ | Book Value $\left(FC-Totaldepreciation\right)$ |
1 | 18,966.9896$\left[\frac{18,966.98956\{{(1+0.06)}^{1}-1\}}{0.06}\right]$ |
281,033.01 $\left(300,000-18,966.9896\right)$ |
2 | 39,071.9985 | 260,928.002 |
3 | 60,383.308 | 239,616.692 |
4 | 82,973296 | 217,026.704 |
5 | 106,918.683 | 193,081.317 |
6 | 132,300.794 | 167,699.206 |
7 | 159,205.831 | 140,794.169 |
8 | 187,725.17 | 112,274.83 |
9 | 217,955.67 | 82,044.3297 |
10 | 250,000 | 49,999.9999 |