Determine the depreciation charge and book value at the end of each year using (i) Sum-of-year-digits method and (ii) Decline balance method.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A company has purchased equipment whose first cost is Tk.3,00,000 with an
estimated life of 10 years. The estimated salvage value of the equipment at the
end of its lifetime is Tk.90,000. Determine the depreciation charge and book
value at the end of each year using (i) Sum-of-year-digits method and (ii)
Decline balance method.
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