Question

KLM Ltd purchased new equipment on 1st January 2010, at a cost of $420 000 net of GST. The company estimated that the equipment had a useful life of 5 years and a residual value of $45 000. Required Assuming a financial year ending 30th June, calculate the amount of depreciation expense for each year ending 30th June 2010 through to 30th June 2015, with each of the following methods: (a) straight line 2 marks (b) sum-of-years-digits 4 marks (c) diminishing balance using the formula 1-(r/c)1/n 4 marks 1- 5 420 000 45 000 = 1 - .64 = 36%

Answer 1

Answer
Cost	420000
Residual	45000
Date of Pur	1/1/2018
Life	5 Year
Close books	30/6
1) SLM
Depriciation for the year = (420000-45000)/5
=	75000
Total Depriciation for 5 years = 375000
Therefore depriciation over the years :-
30/6/2010	37500	(75000/2) Since Asset is there for only Half year for 2009-10
30/6/2011	75000
30/6/2012	75000
30/6/2013	75000
30/6/2014	75000
30/6/2015	37500	(Depriciation upto 31/12/2015 is provided as per the useful life)
2) Sum of Digit method
Total Depriciation to be charged over the 5 years is 375000 (420,000-45,000).
Digits in the year of Amortisation are 1+2+3+4+5 = 15
Therefore in the 1st year 5/15 Amount will be depriciated from the asset
In second year 4/15 and so on
Therefore Depriciation for years will be
Year 1	125000	=5/15*375000
Year 2	100000	=4/15*375000
Year 3	75000	=3/15*375000
Year 4	50000	=2/15*375000
Year 5	25000	=1/15*375000
Since Year end is June 2015 Dep will be proportionately charged
30/6/2010	62500	(Half of Year 1 Dep)(125000/2)
30/6/2011	112500	(Half of Year 1 Dep)(125000/2) + Half Year 2 Dep (100000/2)
30/6/2012	87500	(Half of Year 2 Dep)(100000/2) + Half Year 3 Dep (75000/2)
30/6/2013	62500	(Half of Year 3 Dep)(75000/2) + Half Year 4 Dep (50000/2)
30/6/2014	37500	(Half of Year 4 Dep)(50000/2) + Half Year 5 Dep (25000/2)
30/6/2015	12500	(Half of Year 5 Dep)(25000/2)
3) Diminishing Balance Method
	Dep Rate	36.00%
Year End	Openinig Balance	Dep for the year	Closing Balance
	420,000		420,000
30/6/2010	420,000	75,600	344,400
30/6/2011	344,400	123,984	220,416
30/6/2012	220,416	79,350	141,066
30/6/2013	141,066	50,784	90,282
30/6/2014	90,282	32,502	57,781
30/6/2015	57,781	20,801	36,980