# A Machine Costing P720,000 Is Estimated To Have A Life Of 10 Years. If The Annual Rate Of

A machine costing P720,000 is estimated to have a life of 10 years. If the annual rate of depreciation is 25%, using declining balance method, determine the depreciation at the end of the fifth year.

a P 40, 546

b P 56, 953

c P 65,041

d P 86, 824

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Solution;

Methods of Depreciation: Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear, or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life.

The three methods of depreciation are:

Straight-line method: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset.

Units-of-activity method: In this method of depreciation, the amount of depreciation is charged based on the unit of production each year.

Double-declining balance method (Accelerated method): In this method of depreciation, the diminishing value of the asset is taken into consideration for determining the depreciation for the succeeding years.

Explanation:

Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear, or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life.

Solution:

Calculate the total depreciation.

ABCD1

Year

Opening value

Depreciation at 25%

Closing value

2

1

720000

180000

540000

3

2

540000

135000

405000

4

3

405000

101250

303750

5

4

303750

75937.5

227812.5

6

5

227812.5

56953.13

170859.38

Hence ,option is b current answer.

Explanation:

Calculate the total depreciation.