A unit of welding machine costs P48,500 with an estimated life of 5 years. Its salvage...

A unit of welding machine costs P48,500 with an estimated life of 5 years. Its salvage value is P2.000.00. Find its book value after 2 years by sinking fund method if the
rate is 8% annually.
*CASH FLOW Diagram Needed

Expert Solution

Sinking Fund Method
Annual depreciation (A) = [ (Cost-Salvage) (interest rate) ] / [ (1 + interest rate)^(number of year) -1 ]
Total depreciation after x years = Annual depreciation [(1 + interest rate)^x - 1] / interest rate

Cost	48500
Salvage Value	2000
Life	5 years
X year	2	Year for which total depreciation required
Interest Rate	8%
Book value=Cost -Total depreciation till date

Annual depreciation	7,926.23	=((48500-2000)*8%)/((1+8%)^(5)-1)
Total Depreciation	16,486.55	=7926.23*((1+8%)^2-1)/8%
Book value after 2 years	32,013.45	=48500-16486.55

Year	Cashoutflow
1	7,926.23
2	7,926.23
3	7,926.23
4	7,926.23
5	7,926.23

ekkarill92 answered 11 months ago

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