Chapter 6, Problem 6.4ME

To determine

Concept Introduction:

Straight line method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $\text{Annual Straight line depreciation = }\frac{\left(\text{Cost- Salvage Value}\right)}{\text{Estimated life in years}}$

Double Declining balance method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method, the depreciation is calculated on the beginning book value of depreciation using a depreciation rate. The depreciation rate is calculated with the help of following formula:

  $\text{Double declining depreciation rate = }\frac{\text{2}}{\text{Expected life in years}}$

Return on Investment (ROI): The return on investment is a profitability ratio that measures the percentage of profit earned on the investment made. It is calculated with the help of following formula:

  $\text{Return on investment = }\frac{\text{Net Operating Income}}{\text{Average operating assets}}$

Requirement-a:

To Calculate:

The ROI of Gandlofi for the year ended Dec. 31, 2016

To determine

Concept Introduction:

Revenue and Capital Expenditure:

Straight line method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $\text{Annual Straight line depreciation = }\frac{\left(\text{Cost- Salvage Value}\right)}{\text{Estimated life in years}}$

Double Declining balance method of depreciation: This is one of the methods to calculate the depreciation on assets. Under this method, the depreciation is calculated on the beginning book value of depreciation using a depreciation rate. The depreciation rate is calculated with the help of following formula:

  $\text{Double declining depreciation rate = }\frac{\text{2}}{\text{Expected life in years}}$

Requirement-b:

To Calculate:

The ROI of Gandlofi for the year ended Dec. 31, 2016 using the Double Declining balance method of depreciation