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Reducing Depreciation

Forums › FIA Forums › Reducing Depreciation

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by furgus.
Viewing 2 posts - 1 through 2 (of 2 total)
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    Posts
  • September 14, 2018 at 8:21 pm #474611
    wishgirlgy
    Member
    • Topics: 7
    • Replies: 4
    • ☆

    A new Van purchased on 31 March 20×5, at a cost of $22,000. The van is to be depreciated at 15% reducing balance.
    Depreciation is charged on a monthly basis.
    What is the depreciation charge for the year ended 31 August 20×5?

    Can someone please help me with this?

    September 15, 2018 at 2:36 am #474623
    furgus
    Participant
    • Topics: 9
    • Replies: 16
    • ☆

    I assume you’re ok with calculating reducing balance depreciation but you need help with calculating the monthly reducing balance depreciation rate from the annual rate.

    If the monthly rate is x% then

    after 1 month the NBV is 22,000 x (1-x%),
    after 2 months the NBV is 22,000 x (1-x%) x (1-x%) = 22,000 x (1-x%)^2
    …..
    after 12 months the NBV is 22,000 x (1-x%)^12

    This must be equal to the NBV after 1 year which is 22,000 x (1-15%)

    So, 22,000 x (1-x%)^12 = 22,000 x (1-15%)

    Which you can rearrange to get

    x% = 1 – (1-15%)^(1/12) = 1.3452%

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