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Homework answers / question archive / The Alpha Drug Company has just purchased a capsulating machine for Rs
The Alpha Drug Company has just purchased a capsulating machine for Rs. 20,00,000. The plant engineer estimates that the machine has a useful life of five years and a salvage value of Rs. 25,000 at the end of its useful life. Compute the depreciation schedule for the machine by each of the following depreciation methods:
(a) Straight line method of depreciation
(b) Sum-of-the-years digits method of depreciation
(c) Declining balance method of depreciation
give all steps in detail.
A. Straight line method of depreciation
Depreciation = (value of asset - salvage value ) /life span
= (20,00,000 - 25000)/5
= 395000
In this method value of depreciation is same for all the years.
| Year | depreciation | book value |
| 1 | 395000 | 20,00,000 - 395000 = 16,05,000 |
| 2 | 395000 | 16,05,000 - 3,95,000 = 1, 210, 000 |
| 3 | 395000 | 1210000 - 395000 = 815000 |
| 4 | 395000 |
815000 - 395000 = 420000 |
| 5 | 395000 | 420000 - 395000 = 25000 |
B. Sum of the years digit method
Sum = n/(n+1)/2 = 5(5+1)/2 = 30/2 = 15
Rate for years 1-5 are 5/15, 4/15, 3/15, 2/15, 1/15 respectively.
Depreciation = rate x ( purchase value - salvage value)
For example depreciation of year 1 = 5/15(20,00,000 - 25000) = 658333.33
| Year | rate | Depreciation | book value |
| 1 | 5/15 | 658333.33 | 2000000 - 658333.33 = 1341666.67 |
| 2 | 4/15 | 526666.67 | 1341666.67 - 526666.67 = 815000 |
| 3 | 3/15 | 395000 | 815000 - 395000 = 420000 |
| 4 | 2/15 | 263333.33 | 420000 - 263333.33 = 156666.67 |
| 5 | 1/15 | 131666.67 | 156666.67 - 131666.67 = 25000 |
C. Declining balance method
Rate of Depreciation = 1- ( salvage value/purchase value )1/5
= 1- (25000/20,00,000)0.2
=58.37%
| Years | Depreciation | book value |
| 1 | 20,000,000 x 58.37% = 1167400 | 832600 |
| 2 | 832600 x 58 . 37% = 485,988.62 | 346611.38 |
| 3 | 346611.38 x 58.37% = 202317.06 | 144294.32 |
| 4 | 144294.32 x 58.37% = 84225 | 60069.32 |
| 5 | 60069.32 x 58.37% = 35062 .46 | 25006.8 ( approx) |
