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(Solved): A Tyre Manufacturing Company has purchased an oven whose initial cost is R860 000 with an estimated ...


A Tyre Manufacturing Company has purchased an oven whose initial cost is R860 000 with an estimated life of twelve years. The estimated salvage value of the oven at the end of its useful life span is R100 000.
5.1 Determine the depreciation charge and book value at the end of various years using the
straight line method of depreciation. [6]
5.2 Show the calculations for depreciation and book value on a yearly basis for declining balance method by assuming 0.4 for K. [4]
5.3 Find the depreciation and book value for the 4th year using the sum of the year digits method of depreciation. [4]
5.4 Compute D5 and B6 using the sinking fund method of depreciation with an interest rate of 12% compounded annually. [4]


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Sure! Let's calculate the depreciation charge and book value for each method as requested: 5.1 Straight Line Method: Depreciation Charge per year = (Initial Cost - Salvage Value) / Useful Life Depreciation Charge = (R860,000 - R100,000) / 12 = R71,667 per year


Year 1: Depreciation Charge: R71,667 Book Value: R860,000 - R71,667 = R788,333 Year 2: Depreciation Charge: R71,667 Book Value: R788,333 - R71,667 = R716,666 Year 3: Depreciation Charge: R71,667 Book Value: R716,666 - R71,667 = R644,999 Year 4: Depreciation Charge: R71,667 Book Value: R644,999 - R71,667 = R573,332 Year 5: Depreciation Charge: R71,667 Book Value: R573,332 - R71,667 = R501,665 Year 6: Depreciation Charge: R71,667 Book Value: R501,665 - R71,667 = R429,998


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