Mr Adam wants to sell his car, which he purchased at RM 85,000 after using it for three years. The car is estimated to last for 8 years with a scrap value of RM 20,000. Mr Salman has approached two used car dealers who are offering to sell his car based on the book value. Both dealers use different method to calculate the depreciation. a)Dealer A is using the declining balance method. Construct the depreciation schedule for dealer A. b) Dealer B is using the sum of the year digits method. Construct the depreciation schedule for dealer B c) Comparing the book value for dealer A and dealer B, which dealer is offering a better deal? Explain your answer
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.
Mr Adam wants to sell his car, which he purchased at RM 85,000 after using it for three
years. The car is estimated to last for 8 years with a scrap value of RM 20,000. Mr
Salman has approached two used car dealers who are offering to sell his car based on the
book value. Both dealers use different method to calculate the
a)Dealer A is using the declining balance method. Construct the depreciation
schedule for dealer A.
b) Dealer B is using the sum of the year digits method. Construct the depreciation
schedule for dealer B
c) Comparing the book value for dealer A and dealer B, which dealer is offering a
better deal? Explain your answer
Step by step
Solved in 4 steps with 4 images
