On January 1st, 20X2, Industrial SA purchases metal processing equipment in the amount of 90,000 lei plus 10,000 lei installation and testing costs. The estimated useful life is 5 years, giving a straight-line percentage of 20%. A residual value of 5000 lei is estimated. Management believes that

Question

On January 1st, 20X2, Industrial SA purchases metal processing equipment in the amount of 90,000 lei plus 10,000 lei installation and testing costs. The estimated useful life is 5 years, giving a straight-line percentage of 20%. A residual value of 5000 lei is estimated. Management believes that the economic benefits embodied in this asset are consumed at a decreasing rate. The diminishing balance method is used at a double declining rate. The rate is therefore 40%.

Accepted Answer

Acquisition cost = Purchase price + expenses directly related to the acquisition − Commercial discounts

= 90, 000 + 10, 000 = 100, 000 lei

Depreciable value (Carrying amount to be depreciated) = Acquisition cost − Residual value = 100,000 − 5000 = 95,000 lei
The following table discloses the way the annual depreciation (lei ) based on the double declining method is computed during the asset’s useful life:

Year	Carrying amount to be depreciated	Diminishing balance depreciation	Remaining value (closing NBV)
20X2	95,000 lei	95,000 × 40% = 38,000 lei	100,000− 38,000 = 62,000 lei
20X3	62,000 − 5000 = 57,000 lei	57,000 × 40% = 22,800 lei	62,000 − 22,800 = 39,200 lei
20X4	39,200 − 5000 = 34,200 lei	34,200 × 40% = 13,680 lei	39200 − 13,680 = 25,520 lei
20X5	25,520 − 5000 = 20,520 lei	20,520 × 40% = 8,208 lei	25,520 − 8208 = 17,312 lei
20X6	17,312 − 5000 = 12,312 lei	12,312 lei	17,312 − 12,312 = 5000 lei

To observe the 5 year useful life, the depreciation amount in 20X6 is a balancing figure.

Question 6.17: On January 1st, 20X2, Industrial SA purchases metal processi...

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