Straight Line Method or Fixed Depreication Method:

Cost 110
Salvage Value 10
Estimated life 5 years
Formula = (Cost-Salvage)/life Accumula
Annual ted
Annual Accumulated Net Book Depreciati Depreciati
Year Depreciation Depreciation Value Year on on
End of Year 1 20 20 90 End of Year 1 44 44
End of Year 2 20 40 70 50 End of Year 2 26.4 70.4
End of Year 3 20 60 50 End of Year 3 15.84 86.24
End of Year 4 20 80 30 End of Year 4 9.504 95.744
End of Year 5 20 100 10 End of Year 5 5.7024 101.4464
Loss 20

Annual Accumulated Net Book

Year Depreciation Depreciation Value
End of Year 1
End of Year 2
End of Year 3
End of Year 4
End of Year 5
Net Book
Value
66
39.6 50
23.76
14.256
8.5536
Gain 10.4
Diminishing Balance or Written Down Value Method:
Cost 110
Salvage Value 10
Rate 40%
Formula = Net Book Value * Rate

Annual Accumulated Net Book

Year Depreciation Depreciation Value
End of Year 1 44 44 66
End of Year 2 26.4 70.4 39.6
End of Year 3 15.84 86.24 23.76
End of Year 4 9.504 95.744 14.256
End of Year 5 5.7024 101.4464 8.5536
1. Which method will show higher expenses in year 1?
2. Which method will show higher profits in year 1?
3. Which method will show higher value of assets in year 1?
4. Which method will show higher equity or networth in year 1?
5. Under which method profit will be less volatile?