Question

Mitsushama Systems buys new development machines for ¥150,000 each, and these are used within the company for 6 years. If they have a resale value of ¥40,000, what is their value at the end of each year with straight-line depreciation? How does this compare with the values from reducing-balance depreciation at a rate of 25%? What depreciation rate would reduce the machine’s value to ¥10,000 after 4 years?

Answer 1

a)The value at the end of the each year with straight-line depreciation is calculated as follows:

Depreciation expenses p.a. = (Cost - Salvage Value) / Estimated useful life

                                        = ( ¥150,000 - ¥40,000 ) / 6 Years

                                         = ¥18,333

Year end
Cost	¥150,000
Less: Depreciation p.a	¥18,333
Year end 1	¥131,667
Less: Depreciation p.a	¥18,333
Year end 2	¥11,3333
Less: Depreciation p.a	¥18,333
Year end 3	¥95,000
Less: Depreciation p.a	¥18,333
Year end 4	¥ 76,667
Less: Depreciation p.a	¥18,333
Year end 5	¥58,333
Less: Depreciation p.a	¥18,333
Year end 6	¥40,000

b)The value at the end of the each year with reducing balance depreciation is calculated as follows:

Year end
Cost	¥150,000
Less: Depreciation p.a (25%)	¥37,500
Year end 1	¥112,500
Less: Depreciation p.a (25%)	¥28,125
Year end 2	¥84,375
Less: Depreciation p.a (25%)	¥21,094
Year end 3	¥ 63,281
Less: Depreciation p.a (25%)	¥15,820
Year end 4	¥47,461
Less: Depreciation p.a (25%)	¥11,865
Year end 5	¥35,596
Less: Depreciation p.a (25%)	¥8,899
Year end 6	¥26,697

c)Depreciation expenses p.a = 10,000/ 150,000 *100

                                              = 6.67%