1. DEPRECIATION BY: MR. ISAAC

2. Question #1: Victoria bought a car for $50,000 on January 01 st 2010. The depreciation rate for the year was 5%. What is the net book value of the car at the end of year 2?

3. Question: Victoria bought a car for $50,000 on January 01 st 2010. The depreciation rate for the year was 5%. What is the net book value of the car at the end of year 2?

4. CALCULATING THE DEPRECIATION Depreciation = Rate x The Value of the Asset Year 1 = 5% x $50,000 = $2,500 = $2,500

5. NET BOOK VALUE (NBV) NBV = Cost (NBV) – Depreciation Year 1: NBC = $50,000 - $2,500 = $ 47,500 = $ 47,500

6. CALCULATING THE DEPRECIATION Year 2 = 5% x $47,500 = $2,375 = $2,375

7. NET BOOK VALUE (NBV) Year 2: NBV = $47,500 - $2,375 = $ 45,125 = $ 45,125

8. NBV at the end of Year 2 Year 1: Depreciation = 5% x $50,000 =$2,500 =$2,500 NBV = $50,000 - $2,500 = $47,500 Year 2: Depreciation = 5% x $47,500 = $2,375 = $2,375 NBV = $47,500 - $2,375 = $45,125 = $45,125

9. STEPS IN CALCULATING THE NET BOOK VALUE (NBV) OF AN ASSET PER YEAR – REDUCING BALANCE METHOD Step 1: Identify the cost of the asset, the depreciable rate and the number of years Step 2: Calculate the depreciation for year 1 Step 3: Calculate the NBV for the end of year 1(Beginning of year 2) Step 4: Calculate the depreciation for year 2 using the NBV from the end of year 1 Step 5: Calculate the NBV for the end of year 2 (Beginning of year 3)

10. Principles of Accounts Jan 01,10 Opening bal.$50,000 Dec 31,10 Depreciation$2,500 Bal. c/d $47,500 Bal. c/d $47,500 $50,000 $50,000 Jan 01,11 Bal. b/d$47,500 Dec 31,11 Depreciation$2,375 Bal. c/d $41,125 $47,500 $47,500 Jan 01,12 Bal. b/d$41,125 Dr.Cr. MOTOR VEHICLE: CAR

11. Principles of Accounts Jan 01,10 Opening bal. $0 Dec 31,10 Car $2,500 Dec 31,10 P & L A/C $2,500 $2,500 $2,500 $2,500 $2,500 Jan 01,11 Bal. b/d $0 Dec 31,11 Car $2,375 Dec 31,10 P & L A/C $2,375 $2,375 $2,375 $2,375 $2,375 Dr.Cr. DEPRECIATION EXPENSE A/C

12. Method of Depreciation Reducing Balance This method of depreciation involves multiplying the asset carrying amount by the depreciation rate to calculate the depreciation that can be claimed in that year. This method of depreciation involves multiplying the asset carrying amount by the depreciation rate to calculate the depreciation that can be claimed in that year. NB: The carrying amount is the current value of the asset.

13. QUESTION: Calculation of Depreciation Thomson bought an Audi for $500,000. The car depreciates 10% per annum (reducing balance). 1.Determine the Net Book Value at the end of year 2?

14. NBV at the end of Year 2 Year 1: Depreciation = 10% x $500,000 =$50,000 =$50,000 NBV = $500,000 - $50,000 = $450,000 Year 2: Depreciation = 10% x $450,000 = $45,000 = $45,000 NBV = $450,000 - $45,000 = $405,000 = $405,000

15. QUESTIONS