Question

1. Use Microsoft Excel to solve the question .

The initial cost of an asset is BD100000. It has useful life of 9 years. The estimated salvage value of the asset at the end of useful life is zero. Calculate the annual depreciation and book value using double-declining balance method and find out the year in which the switching is done from double-declining balance method to straight-line method.

Theory related to switching : Switching between different depreciation methods:- Switching from one depreciation method to another is done to accelerate the depreciation of book value of the asset and thus to have tax benefits. Switching is generally done when depreciation amount for a given year by the currently used method is less than that by the new method. The most commonly used switch is from double-declining balance (DDB) method to straight-line (SL) method. In double-declining balance method, the book value never reaches zero. In addition the calculated book value at the end of useful life does not match with the salvage value. Switching from double-declining balance method to straight-line method ensures that the book value does not fall below the estimated salvage value of the asset.

2. Identify why the switching is desired in the above case study
3. Use Microsoft Excel to solve this Question

Some seed cleaning equipment was purchased in 2009 for BD 8,500 for an expected life of 12 years. What is the book value of the equipment at the end of 2021? Original salvage value was estimated to be BD 2,500 at the end of 12 years.

Compute using

1. Straight line method
2. DDB
3. DB
4. Sum of Years method
5. Construct a cash flow diagram for the values computed and mark them for 12 years.

Answer 1