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
As part of its growth strategy, Neat Organization intends to purchase a number of fully-equipped vans to
transport vacationers from the airport to the city resorts as the cost of transport has increased rapidly in recent
years. After 7 years (the predicted useful life of the vans), the management hopes that they will have enough
residual value that can then be used towards purchasing a new fleet. The initial cost of the vans is $1,000,000.
Calculate the following (Show all your working):
a. straight-line depreciation for the first 7 years, considering that the experience of the financial dept. dictates
that the vans could be sold for at least 15% of their initial cost at the end of their life expectancy.
b. the depreciation at 20 % using the reducing balance method for the first 7 years of the vans.
c. Supposing the opportunity to sell some of the vans arises during the last quarter of the fourth year,
demonstrate which method would be more appropriate to be used.
Source: IB Business and Management HL Paper 2, November 2009, adaptations made.
Aproved by:______________ Date: 02jan2013 P__ Num. Of copies: __ Pages _ / _