Review Questions

Volume 1 - Chapter 26

1. Mark Lamb has purchased a new price of equipment to help speed up his
production line. The equipment cost £25,000 and is expected to last for five years.
At the end of this period the equipment can be traded in for the value of £4,000.

You are required to calculate the depreciation on the asset using both methods
show the balance remaining on the van at the end of each of the 5 years for each
method. Assume that 30% is to be used for the reducing balance method.

2. Duncan Palmer, a sole trader purchases a delivery van for the sum of £10,000.
It has as estimated life of 8 years and a scrap value of £1,600. Palmer is not sure
whether to use the straight line or the reducing balance method when providing for
deprecation on the van.

You are required to calculate the depreciation on the van using both methods show
the balance remaining on the van at the end of each of the 8 years for each method.
Assume that 20% is to be used for the reducing balance method.

3. A forklift truck is bought for £15,000. It will be used for 6 years and is
expected to have no residual value.

Show the depreciation calculations for each year using both the straight line
method and the reducing balance method (assuming a rate of 40%)

4. A delivery vehicle costs £25,000 and is expected to last 5 years. At the end of the
five years it is expected to have a scrap value of £2,000. Calculate the deprecation
for each year using:

(a) Straight-line method

(b) Reducing balance method (using a rate of 40%)

5. A machine is bought for £60,000 and is expected, at the end of its life, to have
residual value of £5,000. The machine will need replacing after 4 years. Calculate
the deprecation for each year using:

(a) Straight-line method

(b) Reducing balance method (using a rate of 50%)