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CHAPTER 5 - Depreciation
CHAPTER 5 - Depreciation
DEPRECIATION
TERMINOLOGY
Current Asset
Life span < 1 years
Inventory, cash, debtors
Asset
Depreciation
Example 1
Use the straight-line method to find the yearly depreciation for a planting machine
that has an expected useful life of 5 years. The planting machine cost RM 27,300, its
shipping costs totaled RM 250, installation charges came to RM 450.
STRAIGHT LINE METHOD
Example 1
Use the straight-line method to find the yearly depreciation for a planting
machine that has an expected useful life of 5 years. The planting machine
cost RM 27,300, its shipping costs totaled RM 250, installation charges
came to RM 450 and its salvage value is RM 1,000.
Answers :
Total cost = 27,300 + 250 + 450 = RM 28,000
STRAIGHT LINE METHOD
Example 1
Use the straight-line method to find the yearly depreciation for a plating
machine that has an expected useful life of 5 years. The planting machine
cost RM 27,300, its shipping costs totaled RM 250, installation charges
came to RM 450 and its salvage value is RM 1,000.
Answers :
Total cost = 27,300 + 250 + 450 = RM 28,000
Depreciable value = 28,000 – 1,000 = RM 27,000
STRAIGHT LINE METHOD
Example 1
Use the straight-line method to find the yearly depreciation for a plating
machine that has an expected useful life of 5 years. The planting machine
cost RM 27,300, its shipping costs totaled RM 250, installation charges
came to RM 450 and its salvage value is RM 1,000.
Answers :
Total cost = 27,300 + 250 + 450 = RM 28,000
Depreciable value = 28,000 – 1,000 = RM 27,000
Depreciation value = 27,000 / 5 years = RM 5,400 (current depreciation
value)
STRAIGHT LINE METHOD
Example 2.1
A labeling machine cost RM 43,000. Installation costs totaled RM 1,250 and
shipping costs totaled RM 2,250. It was bought at 2018. It has an expected
useful life of 10 years. Its salvage value is RM 2,000. Use the straight-line
method of depreciation to find the depreciation for the labeling machine from
2018 until 2020
Example 2.1
A labeling machine cost RM 43,000. Installation costs totaled RM 1,250 and
shipping costs totaled RM 2,250. It was bought at 2018. It has an expected
useful life of 10 years. Its salvage value is RM 2,000. Use the straight-line
method of depreciation to find the depreciation for the labeling machine from
2018 until 2020
Total cost = RM 46,500
Depreciable value = 46,500 – 2,000 = RM 44,500
Depreciation value = 44,500 / 10 = RM 4,450
Year Total Cost Depreciation Accumulated Book Value
Value Depreciation
2018 46,500 4,450 4,450 46,500 – 4,450
= RM 42,050
2019 42,050 4,450 4,450 + 4,450 42,050 - 4450
= RM 8,900 = RM 37,600
2020 37,600 4,450 8,900 + 4,450 37,600 – 4,450
REDUCING BALANCE METHOD
Example 3
On 2018, the planting machine cost RM 27,300, its shipping costs
totaled RM 250, installation charges came to RM 45. The depreciation
rate for the planting machine is 20% on book value. Calculate the
value of the machine from 2018 until 2020.
Year Cost Depreciation Accumulated Book Value
Depreciation
2018 27300+250+45 = 27,595 X 0.2 27,595 – 5,519
RM 27,595 = RM 5,519 RM 5,519 =RM 22,076
2019 RM 22,076 22,076 X 0.2 4415+5519 22,076 – 4415
= RM 4,415 = RM 9,934 = RM 17,661
2020 RM 17,661 17661 X 0.2 9934+3532 17,661 – 3532
= RM 3,532 = RM 13466 = RM 14,129
REDUCING BALANCE
METHOD
Example 4
A labeling machine cost RM 43,000 was bought on January 2019.
Installation costs for labeling machine is RM 1,250 and the shipping
costs is RM 2,250 and the depreciation rate is 15% on book value. The
residual value for the machine is RM 2,000. Find the yearly depreciation
and the book value for the labeling machine for January 2021
Tutorial
1.Balraj Company purchased a factory machine of RM 51,000 on January 2015. The
machine is expected to have a salvage value of RM 6,000 at the end of its 5 year useful
life. If the company opt to use depreciation on cost, find the depreciation value for the
machine from 2015 until 2017.
DEPRECIATION
Tutorial
1.Balraj Company purchased a factory machine of RM 51,000 on January 2015. The
machine is expected to have a salvage value of RM 6,000 at the end of its 5 year useful
life. If the company opt to use depreciation on cost, find the depreciation value for the
machine from 2015 until 2017.
Total Cost = 51,000
Depreciable value = 51,000 – 6,000 = RM 45,000
Current Depreciation = 45,000 / 5 = RM 9,000
Year Cost/ book Depreciation Accumulated Book value
value Value depreciation
2015 51,000 (51,000 – 6,000) / 5 9000 51,000 – 9,000
= RM 9,000 = RM 42,000
2016 51,000 RM 9,000 9,000 + 9,000 51000 – 18000
=RM 18,000 = RM 33,000
2017 51,000 RM 9,000 18,000 + 9000 51,000 – 27,000
= RM 27,000 = RM 24,000
DEPRECIATION
Tutorial
2.On 2016, Cikedis Enterprise bought a van at the price RM 75,000. The price is
excluded insurance fee RM 3,200 and stamp-duty RM 2,500. The salvage value for the
van is RM 6,000. If the depreciation rate is 15% based on book value, find the book
value of the van from 2016 until 2018. (RBM)
DEPRECIATION
Tutorial
1.On 2016, Cikedis Enterprise bought a van at the price RM 75,000. The price is
excluded insurance fee RM 3,200 and stamp-duty RM 2,500. The salvage value for the
van is RM 1,500. If the depreciation rate is 15% based on book value, find the book
value of the van from 2016 until 2018. (RBM)
Total cost = 75,000 + 3,200 + 2,500 = RM 80,700
Current Depreciation = 15%
Year Cost/ book Depreciation Accumulated Book value
value Value depreciation
2016 80,700 (80,700 – 1500) X 15% RM 11,880 80,700 – 11,880
=RM 11,880 = RM 68,595
2017 68,820 (68,820 – 1500) X 15% 11,880 + 10,098 68,820 – 10,098
= RM 10,098 = RM 21,978 = RM 58,722
2018 58,722 (58,722 – 1500) X 15% 21,978 + 8,583 58,722 – 8,583
= RM 8,583 = RM 30,561 = RM 50,139