Page 218 - Accountancy_F5

The computation formula is as follows.

Cost of asset residual value-
Depreciation =
Estimated useful life of asset

The following is Example 7.5 illustrating the calculation of depreciation using a straight-
line method.
FOR ONLINE READING ONLY
Example 7.5

TANAPA Company Ltd bought machinery on 1 January 2024 for TZS 260,000,000.
st
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It incurred transportation and installation expenses of TZS 20,000,000 in connection

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with the machinery. TANAPA expects the useful life of the asset to be 6 years. The
estimated realisable value after 6 years is expected to be TZS 10,000,000.
Required: Compute the depreciation and the carrying values for the six years.

Solution 7.5

Cost of asset - residual value ^ 260 ,000 000 + 20 ,000 000 - 10 ,000 000
,
,
,
h
Depreciation =
Estimated useful life of asset 6
Depreciation per annum = TZS 45,000,000
The carrying values at the end of each year over the six years period will be as follows:
Carrying value
Years TZS TZS
“000”
“000”
1 year 280,000 – 45,000 235,000
st
2 year 235,000 – 45,000 190,000
nd
3 year 190,000 – 45,000 145,000
rd
4 year 145,000 – 45,000 100,000
th
5 year 100,000 – 45,000 55,000
th
6 year 55,000 – 45,000 10,000
th
Notes
1. The carrying value is equal to the disposal or realisable value at the end of its useful
life.

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