Financial Analysis

[Name of the Institute]Question 1.

Initial Value = 50000

Salvage Value = 4000

Service life = 10 years

Double declining balance for depreciation

Straight line depreciation rate = 1/10

0.1

Declining balance rate = 2*10%

0.2

Depreciation = .2*50000

10000

Second Year

Depreciation rate = 20%

BV= Cost - Accumulated depreciation

50000-(.2*50000)

Depreciation

40000

8000

Third Year

50000-8000

42000

8400

Forth Year

50000-8400

41600

8320

Fifth Year

50000-8320

41680

8336

Sixth Year

50000-8336

41664

8332.8

Declining balance rate = 20%

Book Value= 50000-10000-8000-8400-8320-8336-8332.8

-1388

43056

BC= 8611.2

The depreciation calculated above would decrease the book value of the asset below the estimated residual value. Therefore the depreciation would not be allowed up to the point where the book value=salvage value.

Here the depreciation lesser than the book value as above the value is in negative.

Using straight line Depreciation method

Straight ...