Context: A Company purchased a new van for floral deliveries on March 31, 2021. The van cost Sh 6,800,000 with an estimated life of 10 years and Sh 1,200,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation is used and the company charges depreciation for the period the asset has been in existence. Hint: Write your answers with comma as in 1,000 not 1000. (a) The depreciable cost for the new van is Sh (b) The rate of depreciation is per cent. (c) The estimated depreciation expense for 2021 is Answer question
Question
Context: A Company purchased a new van for floral deliveries on March 31, 2021. The van cost Sh 6,800,000 with an estimated life of 10 years and Sh 1,200,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation is used and the company charges depreciation for the period the asset has been in existence. Hint: Write your answers with comma as in 1,000 not 1000. (a) The depreciable cost for the new van is Sh (b) The rate of depreciation is per cent. (c) The estimated depreciation expense for 2021 is Answer question
Solution
(a) The depreciable cost for the new van is calculated by subtracting the salvage value from the cost of the van. So, Sh 6,800,000 - Sh 1,200,000 = Sh 5,600,000.
(b) The rate of depreciation using the double-declining-balance method is calculated by dividing 100% by the useful life of the asset and then doubling the result. So, (100% / 10 years) * 2 = 20% per year.
(c) The estimated depreciation expense for 2021 is calculated by multiplying the depreciable cost by the rate of depreciation. However, since the van was purchased on March 31, 2021, it was in use for only 9 months of the year. So, the depreciation expense for 2021 is (Sh 5,600,000 * 20%) * (9/12) = Sh 840,000.
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