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Can anybody explain to me the example 4, part C in chapter 11 in opentuition course note p5.
I can’t work out how they get the depreciation from year 1 to year 5 is : 40,946; 45,041; 49,545; 54,499; 59,499 ????
Thanks alot
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@ddnguyen: the annuity depreciation is method that “The cost of the asset and also interest thereon are written down annually by equal installments until the book value of the asset is reduced to nil or its bread up value at the end of its effective life”. in the example 4 of chapter 11 the total of depreciation and interest expense is equal to (initial investment/total annuity factor- at discount rate of 10%) = 250,000/3.791 =65,946.
The depreciation and interest expense of each year will be calculated as below:
Interest expense = bal sheet value * 10%
Depreciation expense = 65,946 – interest expense
Bal sheet value of this year = bal sheet value of previous year – depreciation of previous year
So you have the depreciation and interest expenses 😉 hope it help
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