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Home › Forums › FIA Forums › FA2 Maintaining Financial Records Forums › Reducing Depreciation

- This topic has 1 reply, 2 voices, and was last updated 1 year, 9 months ago by furgus.

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- September 14, 2018 at 8:21 pm

wishgirlgyMemberA 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

furgusMemberI 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%)^12This 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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