Reducing Balance Method of charging depreciation.

A machine was bought for K10,000.00 and has an estimated economic life of four years and by that time it would likely worth 256.00 as a written down (salvage,scrap or residual).At the end of the fourth year the machine was sold for K5,000.00.Using the Reducing Balance method set up the following: i: Disposal(gain or loss)account ii: Profit and loss account ii: Machinery account ii: Balance sheet.

asked Feb 25, 2016 in Depreciation, Provisions and Reserves. by toemanil (14 points) 776 views

1 Answer

0 votes

Given below is the formula for calculating depreciation in this method.

            R = 1 – (S/C)1/n X 100

Where R = Rate of Depreciation (in %),

n = Useful life of the asset (in years)

S = Scrap value at the end of useful life of the asset

C= Cost of the asset

R = 1 – (256/10000)1/4 X 100

R = (1 - .4) x 100 = 60%

answered Feb 27, 2016 by jbsclasses (3,971 points)
Thankyou for answering this question for me. But I think you have answered on the machinery account.What about the Profit and loss account and the Balance sheet?

Each year in the Balance Sheet Machinery A/c will be shown on the Asset side at its book value as shown below.