Ques.

On April 1, 2012, company X purchased a piece of equipment for Rs. 100,000. This is
expected to have 5 useful life years. The salvage value is Rs. 14,000. Company X considers
depreciation expenses for the nearest whole month. Calculate the depreciation expenses
for 2012, 2013, 2014 using a declining balance method.

Ans.

Useful life = 5

Straight line depreciation percent = 1/5 = 0.2 or 20% per year

Depreciation rate = 20% * 2 = 40% per year

Depreciation for the year 2012 = Rs. 100,000 * 40% * 9/12 = Rs. 30,000

Depreciation for the year 2013 = (Rs. 100,000-Rs. 30,000) * 40% * 12/12 = Rs. 28,000

Depreciation for the year 2014 = (Rs. 100,000 – Rs. 30,000 – Rs. 28,000)  * 40% * 9/12 = Rs.
16,800

the depreciation table is shown below:

Book value at the Depreciation Book value

Year Depreciation rate
beginning Expense end of the y

2012 Rs. 100,000 40% Rs. 30,000 * (1) Rs. 70,000

2013 Rs. 70,000 40% Rs. 28,000 * (2) Rs. 42,000

2014 Rs. 42,000 40% Rs. 16,800 * (3) Rs. 25,200

2015 Rs. 25,200 40% Rs. 10,080 * (4) Rs. 15,120

2016 Rs. 15,120 40% Rs. 1,120 * (5) Rs. 14,000

Depreciation for 2016 is Rs. 1,120 to keep the book value same as salvage value.

Rs. 15,120 – Rs. 14,000 = Rs. 1,120 (At this point the depreciation should stop).