An equipment in a power station costs Ksh.1,560,000 and has a salvage value of Ksh.60,000 at the end of 25 years .Determine the depreciated value of the equipment after 20 yrs using the following methods;(i) Straight line method(ii) Diminishing value method(iii) Sinking fund method at 5% compound interest annually.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
An equipment in a power station costs Ksh.1,560,000 and has a salvage value of Ksh.60,000 at the end of 25 years .Determine the
(i)
(ii) Diminishing value method
(iii) Sinking fund method at 5% compound interest annually.
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