The Dude (Specialist- Finance) (303 Points)
03 April 2009Can any one plase tell me the formula of sum of years method of depreciation?
Please help me solve this problem
Original cost: Rs 126000
Salvage Value: Rs 6000
Useful life : 6 years
hat will be the book value of the asset at the beginning of the 4th yr (Sum of Digit method)
A. Rs 103143
B. Rs 40286
C. Rs 45987
D. Rs 99256
The answer given is B
Please help.
gargi
(Chartered Accountant)
(152 Points)
Replied 04 April 2009
solution
no. of years = 6 ; so the sum of years digit = 1+2+3+4+5+6 = 21 (so the rate of depn. is
for 1st year ; 6/21; depn. = (Rs. 126000-6000) x 6/21 = Rs. 34286
for 2nd year; 5/21 ; depn. = (Rs. 126000-6000) x 5/21 = Rs. 28571
for 3rd year; 4/21; depn. = (Rs. 126000-6000) x 4/21 = Rs. 22857
thus total depn. at the end of 3rd year = Rs. 34286+28571+22857 = 85714 ttarget='_blank' rel='nofollow' hrefore , book value will be (Rs. 126000-85714) = Rs. 40286. like wise the cal. continues upto the end of the useful life of the asset to find out the BV at the end. The above BV is at the beginning of the year 4.
Regards
gargi
gargi
(Chartered Accountant)
(152 Points)
Replied 04 April 2009
solution
no. of years = 6 ; so the sum of years digit = 1+2+3+4+5+6 = 21 (so the rate of depn. is
for 1st year ; 6/21; depn. = (Rs. 126000-6000) x 6/21 = Rs. 34286
for 2nd year; 5/21 ; depn. = (Rs. 126000-6000) x 5/21 = Rs. 28571
for 3rd year; 4/21; depn. = (Rs. 126000-6000) x 4/21 = Rs. 22857
thus total depn. at the end of 3rd year = Rs. 34286+28571+22857 = 85714 ttarget='_blank' rel='nofollow' hrefore , book value will be (Rs. 126000-85714) = Rs. 40286. like wise the cal. continues upto the end of the useful life of the asset to find out the BV at the end. The above BV is at the beginning of the year 4.
Regards
gargi
gargi
(Chartered Accountant)
(152 Points)
Replied 04 April 2009
see the attahced file.
Regards
gargi.
The Dude
(Specialist- Finance)
(303 Points)
Replied 05 April 2009
Thanks a million times for your reply!!!
Saurav
(none)
(22 Points)
Replied 15 October 2009
sir i have a similar question,
I saw this question of capital budgeting in some question set and was unable to solve it. please help! I dont remember every numbers but it was something like this:
machine purchase cost: given, additional current asset required at initial period=50,000
life 10yrs (to be computed in sum of years dep method)
salvage value is 0. there is also an installation cost on machine..and the tricky part where i got confused was regarding the additional investment of 60,000 that was required at 5th year and is completely written off at the end of the machine life (i.e remaining 5yrs).
state whether the proposal is to be accepted or not?
sorry i missed out some datas....but my query is how do i calculate sum of the year depreciation on this one??? i mean how do i treat that additional investment of 60,000 on 5th year? could u please kindly mention the steps of solving it. Id really be thankful for your help.
CAclubindia
