Balancing Depreciation
Balancing depreciation
concept is widely used at the end of project. When the project is ended then
assets is to be fully depreciated. This concept has been explained below with
example.
Balancing
Depreciation Example
ABC & Co purchased Machinery
for a project costing 100,000. The project life was three year and asset to be depreciated
@ 30% reducing balance method. At the end of year 3, the residual value of machinery
was 50,000. Calculate the depreciation for all three years.
Solution
Year 1 Depreciation = 100,000 x 30% = 30,000
Year 2 Depreciation = (100,000-30,000) x 30% = 21,000
Year 3 WDV = 100,000- 30,000-21,000 = 49,000
Year 3 Depreciation = 50,000 (Residual Value) - 49,000
(WDV at beginning) = 1000 (Depreciation)
As the project has ended
so therefore the asset is to be fully depreciated in year 3, and this can be
done by following formula, it is to be noted that depreciation rate is no more
relevant is year 4 (at end of project).
