DEPRECIATION

SINKING FUND METHOD

• The sinking fund method is a technique for
depreciating an asset while generating enough
money to replace it at the end of its useful life.
As depreciation charges are incurred to reflect
the asset's falling value, a matching amount of
cash is invested. These funds sit in a sinking
fund account and generate interest.
Formula for Sinking fund Method

(F.C. – S.V) i
(1 + i ) - 1

Total Depreciation after “x” years d [(1 + i) - 1]

i

Book Value = F.C. - D (total depreciation)

A hauling truck was bought by a land development company for
P1,400,000 three years ago. It will have a salvage value of P600,000 six
years from now. It is sold now for P800,000. What is the sunk cost if the
depreciation method used is sinking fund (i=6%)?
𝐹𝐶 − 𝑆𝑉 𝑖 1,400,000 − 600,000 0.06
𝑑= =
1+𝑖 𝑛−1 1 + 0.06 9 − 1
A hauling truck was bought by a land development company for
P1,400,000 three years ago. It will have a salvage value of P600,000 six
years from now. It is sold now for P800,000. What is the sunk cost if the
depreciation method used is sinking fund (i=6%)?
𝐹𝐶 − 𝑆𝑉 𝑖 1,400,000 − 600,000 0.06
𝑑= =
1+𝑖 𝑛−1 1 + 0.06 9 − 1
𝑑 = 𝑃69,617.79 (depreciation charge)
A hauling truck was bought by a land development company for
P1,400,000 three years ago. It will have a salvage value of P600,000 six
years from now. It is sold now for P800,000. What is the sunk cost if the
depreciation method used is sinking fund (i=6%)?
𝐹𝐶 − 𝑆𝑉 𝑖 1,400,000 − 600,000 0.06
𝑑= =
1+𝑖 𝑛−1 1 + 0.06 9 − 1
𝑑 = 𝑃69,617.79 (depreciation charge)

𝑚 3
𝑑 1+𝑖 −1 69617.79 1 + 0.06 −1
𝐷3 = =
𝑖 0.06
A hauling truck was bought by a land development company for
P1,400,000 three years ago. It will have a salvage value of P600,000 six
years from now. It is sold now for P800,000. What is the sunk cost if the
depreciation method used is sinking fund (i=6%)?
𝐹𝐶 − 𝑆𝑉 𝑖 1,400,000 − 600,000 0.06
𝑑= =
1+𝑖 𝑛−1 1 + 0.06 9 − 1
𝑑 = 𝑃69,617.79 (depreciation charge)

𝑚 3
𝑑 1+𝑖 −1 69617.79 1 + 0.06 −1
𝐷3 = =
𝑖 0.06
𝐷3 = 𝑃221,635.19
A hauling truck was bought by a land development company for
P1,400,000 three years ago. It will have a salvage value of P600,000 six
years from now. It is sold now for P800,000. What is the sunk cost if the
depreciation method used is sinking fund (i=6%)?
𝐹𝐶 − 𝑆𝑉 𝑖 1,400,000 − 600,000 0.06
𝑑= =
1+𝑖 𝑛−1 1 + 0.06 9 − 1
𝑑 = 𝑃69,617.79 (depreciation charge)

𝑚 3
𝑑 1+𝑖 −1 69617.79 1 + 0.06 −1
𝐷3 = =
𝑖 0.06
𝐷3 = 𝑃221,635.19

𝐵𝑉3 = 1400000 − 221635.19 = 𝑃1,178,364.81

A hauling truck was bought by a land development company for
P1,400,000 three years ago. It will have a salvage value of P600,000 six
years from now. It is sold now for P800,000. What is the sunk cost if the
depreciation method used is sinking fund (i=6%)?
𝐹𝐶 − 𝑆𝑉 𝑖 1,400,000 − 600,000 0.06
𝑑= =
1+𝑖 𝑛−1 1 + 0.06 9 − 1
𝑑 = 𝑃69,617.79 (depreciation charge)

𝑚 3
𝑑 1+𝑖 −1 69617.79 1 + 0.06 −1
𝐷3 = =
𝑖 0.06
𝐷3 = 𝑃221,635.19

𝐵𝑉3 = 1400000 − 221635.19 = 𝑃1,178,364.81

𝑆𝑢𝑛𝑘 𝑐𝑜𝑠𝑡 = 1,178,364.81 − 800,000 = 𝑃378,364.81