[bkamara65]

The first parrot is the Audit Senior, the second is the Audit Supervisor and the third of course the Senior Partner.

[bkamara65]

The questions were fair but too demanding, time was therefore the problem.

[bkamara65]

I’ve tried countless times to get this sample question but to no avail.please can you give me the link?
Thank
Brima

[bkamara65]

Annuity depreciation is an alternative form of depreciation, it is calculated by finding the equivalent annual cost (EAC) of the initial investment at the company cost of capital.
The EAC is calculated thus: initial investment/cum.disc factor
The annual depreciation is computed such that :
1) Depreciation + imputed interest on capital =EAC, alternatively
2) EAC – imputed interest charge =depreciation
Note* the NBV is used each year to compute the interest charge.
I’ve been looking for past question on this subject,but could not find one.
However, look at this simple illustration:
A Company require an invest of $2,100 and is expected to yield a net cash inflow of $320 per annum for five years.non of the initial investment will be recoverable at the end of the project.
The company cost of capital is 10%,annual accounting profit are to be assumed to equal net inflows less depreciation and tax is to be ignored.

Solution
Step 1 – Find the EAC, = 2,100/3.791=$554
Step 2 -Depreciation = EAC-imputed interest charge
therefore,
Yr 1 = ( 10%@2,100)=$210
so, $554-$210=$334 charge for the year.
Yr 2 = (10% @2,100-334)=$177
so, $554-$177 =$377 and so on , try year 3-5, if you’ve problem we’ll chat it out.
Regard
Brima Khadri

[Author]

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