Question

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% annual...


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.

Answer

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:

Annual depreciation (A)=[(FC-SV) (i)][(1+i)n)-1]=[(300,000-50,000) (0.06)][(1+0.06)-1]=Php 18,966.9856

 

Year Total depreciation A{(1+i)n -1 }i Book Value FC - Total depreciation
1 18,966.989618,966.98956 {(1+0.06)1 -1 }0.06

281,033.01

300,000 -18,966.9896

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

 

 

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