Al-Azhar University Mechanical Engineering Department

Faculty of Engineering 4th Year – Engineering Economy

Depreciation

1. A Special purpose machine has been purchased for 100,000 LE and has no salvage value at the end of 10
years. Calculate the book value and the total depreciation at the end of the eighth year by using straight
line and declining balance methods. Comment on the results.

2. The salvage value of a drilling machine is expected to be one tenth of its initial price. The book value is
500,000 LE at the end of the half-life of the machine.

 Calculate the initial machine price by using straight-line method and declining balance method
and mention which method is the best by the aid of a graph.
 Calculate the book value after 75% of the machine life by using both straight line and declining
balance methods.

3. A machine has been purchased for 2,000,000 LE. The book value at the end of the sixth year is 1,100,000
LE and the estimated life is 10 years. By using straight line, declining balance find:
 The scrap value.
 The total depreciation at the end of the fourth year.

4. A new electric saw for cutting small pieces of lumber in a furniture manufacturing plant has a cost basis
of $4,000 and a 10-year depreciable life. The estimated SV of the saw is 5% of its initial book value at the
end of 10 years. Determine the annual depreciation amounts, using both straight line and DDB methods.

5. A company purchased a machine for $15,000. It paid sales taxes and shipping costs of $1,000 and
nonrecurring installations costs amounting $1,200. At the end of three years, the company had no further
use for the machine, so it spent $500 to have the machine dismantled and was able to sell the machine for
$1,500. The company had depreciated the machine on an SL basis, using an estimated useful life of five
years and $1,000 SV. By what amount did the depreciation deductions fail to cover the actual
depreciation?

Dr. Tarek Nasreldeen

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