Depreciation Chapter 15

CHAPTER 15
DEPRECIATION
PROBLEM NO 38

Investors in the MJ Group purchased a hotel resort in April. The group paid
Rs 1,50,000 for the hotel resort. The useful life of the resort is 7 years. The salvage value at
the end of useful life is Rs. 30,000. Determine the Depreciation charge at the end every
years.

GIVEN

First cost = ₹ 1,50,000.00

Useful life = 7 years

Salvage value = ₹ 30,000

TO FIND

Depreciation charge at the end of each years =?

SOLUTION

STEP 1: The default function for finding the Straight-Line Depreciation in excel is

=SLN (cost, salvage, life)

Where,

Cost – First cost

Salvage – Amount after selling the machine at the end of useful life

Life – Useful life

STEP 2: Enter the required values such as First cost, salvage and useful life.

131
Depreciation Chapter 15

STEP 3: The Excel worksheet will calculate the value (Depreciation charge per year) and the
Result will be displayed in the screen.

STEP 4: Now the Depreciation charge at the end of each year is calculated.

Use VDB to compute the depreciation amounts

PERIOD DEPRECIATION
1 ₹ 21,428.57
2 ₹ 36,734.69
3 ₹ 26,239.07
4 ₹ 18,742.19
5 ₹ 13,387.28
6 ₹ 3,468.20
7 ₹ 0.00
8 ₹ 0.00
₹ 1,20,000.00

RESULT:

 Depreciation charge at the end of each years = Rs. 17,142.86

PROBLEM NO 38

132
Depreciation Chapter 15

Freeport-McMoRan Copper and Gold has purchased a new ore grading unit for Rs
1,00,000. The unit has an anticipated life of 12 years and a salvage value of Rs12,000. Use
the DB and DDB methods to compare the schedule of depreciation and book values for each
year.

GIVEN

First cost = ₹ 1,00,000

Useful life = 12 years

Salvage value = ₹ 12,000

TO FIND

Depreciation charges using

(a) Straight line depreciation and

(b) DDB depreciation.

SOLUTION

STEP 1: The formula for calculating Depreciation rate is

d=1−¿

Where,

S – Salvage value

B – First cost

n – Useful life

STEP 2: The default spreadsheet function for finding the Declining Balance in excel is

=DDB (cost, salvage, life, period, [factor])

Where,

Cost – First cost

Salvage – Amount after selling the machine at the end of useful life

Life – Useful life

Period – end of year

133
Depreciation Chapter 15

Factor – optional (usually, useful period*Depreciation Rate)

STEP 3: The default spreadsheet function for finding the Double Declining Balance is

=DDB (cost, salvage, life, period)

Where,

Cost – First cost

Salvage – Amount after selling the machine at the end of useful life

Life – Useful life

Period – end of year

STEP 4: To find Declining Balance, Enter the required values such as cost, salvage, life,
period and factor for calculating the declining balance using the spreadsheet formula.

STEP 5: The Book value is calculated by subtracting First cost by Depreciation charge.

134
Depreciation Chapter 15

STEP 6: To find Double Declining Balance, Enter the required values such as cost, salvage,
life, period and factor for calculating the declining balance using the spreadsheet formula.

STEP 7: The Book value is calculated by subtracting First cost by Depreciation charge.

135
Depreciation Chapter 15

STEP 8: Now the calculated are shown as table.

GRAPH:

136
Depreciation Chapter 15

137