CBCB011
Chapter 2: Depreciation
Question 1
A company purchased a machine for R18 500 that had an associated freight and setup
cost of R2 500.
The estimated life of the machine is 5 years, and its book value will be R1 000.
REQUIRED:
Prepare the company’s depreciation schedule using the diminishing balance method.
Question 2
XYZ Ltd purchased a heavy-duty printing machine on 1st of January 2023 for R49 000.
Transport costs amounted to R6 000 and installation costs were R7 500. The machine
is expected to be useful for 4 years and the company has estimated it will have a
residual value of R2 500.
REQUIRED:
If the printing machine is expected to produce 40 000 copies in its 1st year of use, 45
000 in its 2nd, 65 000 in its 3rd and 50 000 in its 4th, construct a table to illustrate the
units of production schedule depreciation of the printing machine.
Question 3
A firm bought a machine for R20 000 which is expected to be used for 5 years and then
sold for R2 000. What is the annual amount of depreciation if the straight-line method is
used?
REQUIRED:
Calculate the annual amount of depreciation if the straight-line method is used.
Question 4
A machine cost R25 650 and depreciates to a scrap value of R500 in 10 years.
REQUIRED:
Calculate the book value at the end of the sixth year if the reducing balance method of
depreciation is used.
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Question 5
If a conference table has an original cost of R1 467.89 and a useful life of 5 years, after
which it becomes valueless.
REQUIRED:
Construct its depreciation schedule using the sum of year’s digits method.
Question 6
A company purchased an asset for an original cost of R70 000. After production of 6
000 units, the salvage value of the asset will be R10 000. Units of production are 1 000,
1 100, 1 200, 1 300 and 1 400 for years 1, 2, 3 and 4 respectively.
REQUIRED:
Construct the depreciation schedule using the units of production method for the asset.
(Show opening carrying value, units produced, depreciation per unit, depreciation
amount, accumulated depreciation and closing carrying value for each year).
Question 7
Company XYZ purchased a delivery truck for R500 000 with a useful life of 5 years and
a salvage value of R50 000.
REQUIRED:
Using the straight-line method of depreciation, calculate the annual depreciation
expense for the truck and calculate the depreciation schedule.
Question 8
ABC Manufacturing acquired a piece of machinery for R100 000. It has an estimated
useful life of 8 years and a salvage value of R10 000.
REQUIRED:
Using the double-declining balance method, determine the depreciation expense for
year 3.
Question 9
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PC Engineering (Pty) Ltd purchases a new computer for R10 000, and spends an
additional R1 000 on software and setup costs. What is the total cost of the computer?
REQUIRED:
Calculate the total cost of the computer.
Question 10
DHL purchases a fleet of new delivery trucks for R5 000 000, with an additional R1 000
000 spent on fuel and maintenance costs during their first year of operation. The trucks
are expected to have a useful life of 7 years, with a salvage value of R500 000. The
trucks are expected to generate R4 500 000 in revenue during their first year of
operation, with a 10% increase in revenue projected for each subsequent year.
REQUIRED:
a. Calculate the total cost of the asset.
b. Calculate the depreciation schedule using the straight-line method for the
delivery trucks.
Question 11
Mavhungu Computers Limited acquires a new software system for R1 000 000
and spends an additional R500 000 on training employees and modifying the
system to fit the company's specific needs. Over the next year, the company
spent an additional R250 000 on software updates, maintenance, and
troubleshooting. The software ultimately improves the efficiency of the company's
operations, resulting in annual cost savings of R750 000.
REQUIRED:
a. What is the total cost of the asset?
b. The software system has an estimated useful life of 6 years. Using the double-
declining method calculate the depreciation schedule for the asset.
Question 12
ABC Manufacturing Company purchases machinery for R700 000 with an
estimated useful life of 8 years and a residual value of R50 000. The company
built a foundation worth R100 000 where the equipment will be placed. Over the
first 3 years, the company spent an additional R100 000 on maintenance and
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new parts for the machinery. The company estimates that the machinery will
produce 20,000 units over its useful life.
Year 1: 1 500
Year 2: 2 500
Year 3: 1 000
Year 4: 3 000
Year 5: 4 600
Year 6: 5 400
Year 7: 800
Year 8: 1 200
REQUIRED:
a. Calculate the total cost of the asset.
b. Calculate the depreciation schedule using the units of production method.
Question 13
XYZ Corporation buys a delivery truck for R500 000 with an estimated useful life
of 5 years and no residual value. The company spends an additional R50 000 on
customizations for the truck, by wrapping the truck in a yellow color for it to be
unique and outstanding. Over the useful life of the truck, it is estimated that the
truck will travel a total of 200 000 km.
Year 1: 40 000 km
Year 2: 25 000 km
Year 3: 55 000 km
Year 4: 30 000 km
Year 5: 50 000 km
REQUIRED:
a. Calculate the total cost of the asset.
b. Calculate the depreciation schedule using the units of production method.
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Question 14
LMN Company purchases new office furniture for R300,000 with an estimated
useful life of 10 years and a residual value of R30,000. Over the first year, the
company spent an additional R20,000 on repairs and replacements for the
furniture.
REQUIRED:
a. Construct the depreciation schedule using the straight-line method.
Question 14
A company purchases a new piece of equipment for R650 000 with a salvage
value of R5 000. The equipment is expected to have a useful life of 5 years.
REQUIRED:
a. Construct the depreciation schedule using the sum of years digits method.
Question 15
A company purchased a new HP Core i7 laptop for R30 000 with a salvage value
of R3 000. The laptop is expected to have a useful life of 3 years.
REQUIRED:
a. Construct the depreciation schedule using the sum of years digits method.
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