Department of Management sciences

Assignment

Subject: Financial Statement Analysis

Topic: Calculating Depreciation through Straight line and
Accelerated depreciation Methods
Submitted To: Dr. Muhammad Wajid Raza
Submitted By: Muhammad Rashid
Program: BBA 7th Semester
Roll No: 3430
Submitted Date: 26/03/2019
Numerical:

Mr. Rashid is the accounting manager of ABC Company the company bought a
new building at market price of 39000 Rupees. Now Rashid has to decide the
capitalization procedure for the building. He discussed this issue with other
department the engineer told him that the building can be used for five year after
five year the building will still generate 4000 rupees you are required to estimate
the depreciation schedule for the company using both straight line and accelerated
depreciation methods.

Answer:

Given Data:

Building price Rs. 39000

Residual value Rs. 4000

Useful life 5 years

Required:

1. Estimate Depreciation trough Straight line method?

2. Estimate Accelerated depreciation?

Solution:

Required 1:

Calculating depreciation Using straight line depreciation method

As we know that the Straight line depreciation formula is given as.

Ddepreciable value)………….. (1)

Depreciable value = (Original price – Residual value) = (39000-4000) = 3500

Now Putting the value in Eq…………… (1)

35000 = 7000

Now making the table for above method.

Time Rate Original value – Depreciation Accumulated Net Book

Salvage value expense Depreciation Value
0 39000
1 1/5 39000-4000 = 35000 7000 7000 32000
2 1/5 35000 7000 14000 25000
3 1/5 35000 7000 21000 18000
4 1/5 35000 7000 28000 11000
5 1/5 35000 7000 35000 4000

Required 2:

Calculating depreciation using Accelerated depreciation.

As we know that Accelerated depreciation is given as.

Ddepreciable value)………….. (1)

In the above formula

n = number of year

I = time (current Year)

SYD = Sum of Year Digits

Depreciable value = (Original price – Residual value) = (39000-4000) = 3500

Now Putting the value in Eq…………… (1)

35000) = 35000)

35000) = 11667

35000) = 9334

35000) = 7000

35000) = 4667

35000) = 2334

Now making the table for above method.

Time Rate Original value – Depreciation Accumulated Net Book

Salvage value expense Depreciation Value
0 39000
1 5/5 39000-4000 = 35000 11667 11667 27333
2 4/5 35000 9334 21001 17999
3 3/5 35000 7000 28001 10999
4 2/5 35000 4667 32668 6332
5 1/5 35000 2334 35002 3998 almost
4000