Question

Manufekterer Company is a middle size manufacturing company located at Jalan Kelang. The company just purchased an intelligent robot for its manufacturing line for RM420000 from Germany. The RM420000 inclusive of the transportation cost of RM47000 and import duty cost of RM103000. Since the robot is unique in its capabilities, the company paid RM50000 to an expert to teach its staff on how to operate the robot. In addition the company spends RM16000 per year in the maintenance and operation of the robot. The robot is expected to be used for 4 years with an estimated salvage value of RM79000 at the end of its useful life.

	Answers
a) Determine the cost basis of the robot purchased.
b) Straight Line depreciation method. Determine the deprecation at Year 3
c) Straight Line depreciation method. Determine the book value at Year 3
d) Declining Balance method. Determine the depreciation at Year 3
e) Declining Balance method. Determine th book value at Year 3

Answer 1

a) Cost of robot purchased = Robot purchasing cost + cost incurred on robot till starting operation = RM420000

NOTE- 1) Since staff training costs and Maintenance and operation cost are of revenue nature, therefore these costs are not included in the cost of Robot purchased.

b) Depreciation as per the straight-line method -

Amount of Depreciation = (Cost of Asset – Salvage Value) / Useful Life

= (RM420000 - RM 79000) / 4 years = RM85250

Since under straight-line method depreciation remains the same each year. So total depreciation at the end of the 3rd year will be (RM85250 × 3 Years) = RM255750

C) Book value of the robot at the end of 3rd year ( As per the straight-line method )

= cost of the asset - Depreciation up to 3 years

= RM420000 - RM255750

= RM164250

D) Depreciation at year 3 ( as per decling balance method ) =

R= [1 – (S/C)^1/N ] x 100

Where R = Rate of Depreciation (in %)

n = Remaining useful life of the asset.  s = Scrap value.  c= Cost of the asset

R = [1- (RM79000/RM420000)^1/4] x 100

=35%

Rate of Depreciation is 35%.

Depreciation for 1 st year = RM420000x35/100 = RM147000

Book value of Robot in begining of 2nd year = RM420000 - RM147000 =RM273000

Depreciation for 2nd Year = RM273000x35/100= RM95550

Book value of Robot in begining of 3 year = RM237000 - RM147000 =RM177450

Depreciation at the end of 3rd year = RM177450x35/100= RM62107.5= RM62108

e) Book value of Robot ath end of 3rd year = Cost of Robot - Total 3year's Deprecaion

= RM420000 - (RM147000+RM95550 +RM62108)

= RM115342