1.1. Depreciation Calculation for the First Year

Try these first

1. 1.

   What is the Sum of the Years' Digits method used for?

   Hint

   Think about how asset value decreases over time.

2. 2.

   How do you calculate the book value of an asset?

   Hint

   Consider what happens to value as depreciation accumulates.

3. 3.

   What does the Sum of the Years' Digits method focus on?

   • Book value reduction
   • Total years of useful life
   • Assets' immediate value

   Hint

   Think about how the value diminishes over time.

4. 4.

   True or False: The Double Declining Balance method considers salvage value in its calculations.

   • True
   • False

   Hint

   Recall the focus of DDB method regarding book value.

5. 5.

   Calculate the depreciation for the first three years using both SYD and DDB methods for an asset with an initial cost of ₹9,000,000, tire cost of ₹500,000, and a salvage value of ₹1,500,000 over a useful life of 5 years.

   Hint

   For SYD, remember to apply the method correctly to each year by applying the fraction from the sum of the years.

6. 6.

   Determine the point at which switching from DDB to a straight-line method would be beneficial in the scenario of an asset costing ₹10,000,000 with a tire cost of ₹1,000,000 over 8 years.

   Hint

   Calculate the diminishing values year-over-year and compare them to salvage value.