An exercise to learn Straigth-Line and Reducing Balance Methods of depreciation

1. UNIDAD EDUCATIVA BILINGÜE NUEVO MUNDO
WORK SHEET
FOR SOC 03 VER 10 12 12
GRADE
__________
NAME: …………………………………… TEACHER: Alex A. / Verónica I.
GRADE: ………. SECTION: ……………. SUBJECT:
DATE: __/___/__ TYPE: Classwork
Depreciation: using both methods
Annette manning, the new financial director at Docks Ltd., has been carrying out a review of their accounts and
accounting policies. In particular she has decided to review the way they account for depreciation of their fixed
assets.
Annette recently spent $150,000 on a computer-controlled machine for cutting and painting of various
components. The machine is expected to have a useful life of five years. Annette believes the machine could be
sold at the end of its useful life for a 20% of its historical cost.
a. Using straight-line method, calculate the book value of the asset at the end of the fifth year.
b. If the financial director chooses to use the reducing balance method of calculating depreciation and charged
depreciation at 30% each year, what would be the book value at the end of 5 years? Show your workings.
c. Suppose at the end of the third year there's a possibility of selling the machine in order to improve the cash-
flow position of the business. Demonstrate which method is best to be used and why.
Source: IB Questionbank, adaptations made.
Aproved by:______________ Date: 02jan2013 P__ Num. Of copies: __ Pages _ / _