A company has purchased an equipment whose first cost is Rs. 1,00,000 with an estimated life of eight years. The estimated salvage value of the equipment at the end of its lifetime is Rs. 20,000. Determine the depreciation at the end of various years using the sinking fund method of depreciation with an interest rate of 12%, compounded annually.a.Rs. 20,000b.Rs. 6504c.Rs. 14,378
Question
A company has purchased an equipment whose first cost is Rs. 1,00,000 with an estimated life of eight years. The estimated salvage value of the equipment at the end of its lifetime is Rs. 20,000. Determine the depreciation at the end of various years using the sinking fund method of depreciation with an interest rate of 12%, compounded annually.a.Rs. 20,000b.Rs. 6504c.Rs. 14,378
Solution
The sinking fund method of depreciation is a method where funds are set aside annually so that at the end of the asset's life, the total amount set aside will be equal to the cost of the asset. The amount set aside each year is determined by the formula:
A = P * (i / (1 - (1 + i) ^ -n))
Where: A = Annual sinking fund deposit P = Initial cost of the asset - Salvage value i = Interest rate n = Useful life of the asset
Given: P = Rs. 1,00,000 - Rs. 20,000 = Rs. 80,000 i = 12% = 0.12 n = 8 years
Substituting these values into the formula, we get:
A = Rs. 80,000 * (0.12 / (1 - (1 + 0.12) ^ -8))
Calculating the above expression will give us the annual depreciation of the asset.
Please note that the depreciation will be the same for each year as we are using the sinking fund method which assumes the depreciation to be uniform over the asset's life.
Similar Questions
Assume the cost of computer equipment was $11,000, the estimated residual value is $1,000, and the estimated useful life is five years. The company uses a declining balance method to depreciate the asset over its useful life at a rate of 40%. Calculate the depreciation expense of the company over the 5 years.
A company purchase a building for rupees 5lac with in estimate usefull life of 20 years and a salvage value of rupees 1lac. Using the sum of the year digital method of depreciation expense for the first year?
A company used straight-line depreciation for an item of equipment that cost $12,550, had a salvage value of $2,200 and a six-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,255 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life:Multiple Choice$2,200.$1,035.$4,498.$2,040.$1,980.
A company purchased factory equipment for $700,000. It is estimated that the equipment will have a $70,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would beGroup of answer choices$252,000.$280,000.$120,960.$168,000.
A company purchased equipment for $10,000. The equipment has a useful life of 5 years and a salvage value of $1,000. Using the straight-line depreciation method, what is the annual depreciation expense?
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.