Page 222 - Accountancy_F5

Required:

(i) Calculate the depreciation provision under the units of production method.
(ii) Show the depreciation schedule and the carrying value of the asset at the end of
each year.

FOR ONLINE READING ONLY
Solution 7.7
Cost af asset - residual value TZS 100 ,000 000 - 20 ,000 000h
,
,
^
(i) Depreciation rate = =
Total estimated units of output 800 ,000
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TZS 100 per unit. Thus, the depreciation rate is TZS100 per unit of output.
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(ii) The value of TZS 100 per unit is now multiplied by the number of units of output
each year as shown in the following table:
Depreciation schedule

Annual depreciation Carrying value
Production (in
Year ended TZS TZS
units)
”000” ”000”
1 Jan. 2017 - - 100,000
st
31 Dec. 2017 150,000 15,000 85,000
st
31 Dec. 2018 200,000 20,000 65,000
st
31 Dec. 2019 190,000 19,000 46,000
st
31 Dec. 2020 150,000 15,000 31,000
st
31 Dec. 2021 110,000 11,000 20,000
st
Note: the carrying value on 31 December 2021 is exactly TZS 20 million which is the
st
selling value the asset is expected to fetch at the end of its useful life.

Sum of the years’ digits
The sum of years’ digits method depreciates the non-current assets at a faster rate than
the straight-line method, but less than the reducing balance method. It charges higher
depreciation expense in the early years of an asset’s useful life and declines from year
to year. It is most suitable when the value of an asset declines much in the early years of
its useful life. The calculation of the depreciation is obtained by dividing the remaining
useful life of an asset by the sum of the years of the expected useful life. Thereafter, it
is multiplied by the depreciation base to determine the depreciation expense.

Student’s Book Form Five
209

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