A company purchases a piece of plant for $250,000 with an expected life of 5 yea

Question

A company purchases a piece of plant for $250,000 with an expected life of 5 years, when it expects to be able to sell it for $50,000. The cost of capital for this company is 17%. Determine the depreciation to be charged each year using each method in the table below. Answers should be correct to 2 decimal places. Note: the question is asking for the amount of depreciation for each year. This is the amount that should be used as an expense for that year. This means the total sum for each column should be the same Year Straight Line Diminishing Value Sinking Fund Sum of Digits 2 3 4 5

Explanation / Answer

66,666.67

53,333.33

YEAR STRAIGHT LINE DIMINISHING VALUE SINKING FUND SUM OF DIGITS 1 40,000.00 68,805.10 40,000.00

66,666.67

2 40,000.00 49,868.50 40,000.00

53,333.33

3 40,000.00 36,143.70 40,000.00 40,000.00 4 40,000.00 26,196.20 40,000.00 26,666.67 5 40,000.00 18,986.50 40,000.00 13,333.33 TOTAL 200,000.00 200,000.00 200,000.00 200,000.00

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