Annette Manning, the new financial director of Docks Ltd., is reviewing the company's accounting policies, including how they account for depreciation of fixed assets. She recently spent $150,000 on a new machine and wants to calculate its book value after 5 years using straight-line and reducing balance depreciation methods. Using straight-line depreciation, the machine's book value after 5 years would be calculated. Using reducing balance depreciation at 30% per year, its book value after 5 years is also calculated. The summary demonstrates which depreciation method would be best if the machine was sold after 3 years based on its cash flow implications for the business.

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 _ / _