A welding machine that costs £4,600,000 is expected to have a life of 5 years and a scrap value of approximately £300,000.
Depreciation is first calculated on the basis of the equal installment method.
Using this method it is expected to depreciate each year by 18.7% of its original value.
Calculate:
(a) the amount of depreciation each year
(b) the book value after 3 years
(c) the total depreciation over the period of the first 3 years.
As an alternative, depreciation is calculated on the basis of the diminishing balance method.
Using this method it is expected to depreciate each year by 42.5% of its value at the start of that year.
(d) Calculate:
(i) the amount of depreciation in the first year
(ii) the book value after 3 years.