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A company has purchased a bus for its officers for Rs
A company has purchased a bus for its officers for Rs. 10,00,000. The expected life of the bus is eight years. The salvage value of the bus at the end of its life is Rs. 1,50,000. Find the following using the sinking fund method of depreciation:
(a) Depreciation at the end of the third and fifth year
(b) Book value at the end of the second year and sixth year
Give steps in detail.
Expert Solution
Assuming that the annual interest compounded is equal to i= 8%=0.08. Given value of n=8, FC= 10,00,000, SV= 1,50,000
Total depreciation after x years = A [(1 + i)^x - 1] / i
where A is the annual depreciation and is given by
A= [ (FC -SV) (i) ] / [ (1 + i)^(n) -1 ] = [850000×0.08]/[1.08? -1]
= Rs. 79,912.54
a)
After 3 years, x=3 => depreciation = 79912.54[1.08³-1]/0.08
= Rs. 2,59,428.07
After 5 years, x=5 => depreciation = 79912.54[1.08?-1]/0.08
= Rs. 4,68,814.98
b)
Book value at the end of x years= FC - Depreciation after x years
So, book value at the end of 2nd year = 1000000 - 79912.54[1.08²-1]/0.08
= Rs. 8,33,781.92
BV at the end of year 6 = 1000000 - 79912.54[1.08?-1]/0.08
=Rs. 4,13,767.28
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