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Hello? Joel. I have a query for an answer that was given here…
A machine costs $9.000. It has an expected useful life if 6 years, and an expected residue value of $1,000. It is to be depreciated at 30 per cent per annum on the reducing-balance basis. A full year’s depreciation is charged in the year of purchase, with non in the year of sale. During year 4, it is sold for $3,000. What is the profit or loss on disposal?
All they did was to multiply the 90000 with 0.7^3, which gave them 3087 as the NBV. Sale proceeds – NBV = 3087-3000= 87 loss on disposal..Kindly help me figure out how they found the 0.7
I will appreciate30% is equivalent to 0.3; 70% is equivalent to 0.7. Ifmthe depreciation rate is 30%, the NBV after a,year is 70% of the opening balance. Residual value is not relevant in reducing balance depreciation.
After 1st yr, NBV would be 9,000 – 9,000 x 0.3 = 6,300 (or 9,000 x 0.7)
After 2nd yr, NBV would be 6,300 – 6,300 x 0.3 = 6,300 x 0.7 = 4,410 = 9000 x 0.7 x 0.7 = 4,410
After 3rd, yr, NBV would be 9000 x 0.7 x 0.7 x 0.7
HTH
Not sure why you called me Joel. I’m Ken.
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