Found 96 Articles for Academic Content

In leasing, the company which leases is called lessor and the user is called lessee. The agreement made between lessor and lessee is called leasing. Different types of leasing are operating lease, financial lease, sale and lease back and leverage lease.Financial lease is an agreement in which lessor receives lease payments. In this lessor is responsible for maintenance, taxes and insurance. In this there will be substantial transfer of risk and rewards to lessee.Main features of financial lease are as follows −Lessee selects an asset.Lessor purchases that asset.Lessee uses that asset during the time.Lessee pays rentals for using the asset.Lessee ... Read More

Below are the basic stock trading terms −Buy − Buy shares in company.Sell − Selling of shares after meeting the target (personal) or to minimise loss.Ask − People are looking to sell their shares or looking get for their shares.Bid − Willing to pay for a stock.Ask – Bid spread − Difference between what people are spending and what they want to get.Bull − Investors will expect prices rise.Bear − Investors will expect price fall.Limit order − Order that tells about a price to buy or sell.Market order − Executes order as quickly as possible.Day order − It tells a ... Read More

Processes 150 kgs of coffeeServed 1350 customersSolutionThe solution is given below −Cost of the machine = $ 75000Salvage value = $ 3000Depreciable value = cost of machine – salvage value       = (75000 – 3000)       = $ 72000Processes 150 Kgs of coffeeDepreciation = depreciable value * (number of units processed/total number of process units)       = 72000 * (150/700)       = $ 15428.57Served 1350 customersDepreciation = depreciation amount * (number of customers served/total number of customers)       = 72000 * (1350/17500)      = $ 5554.29

Units of production method is a bit different from other methods of depreciation. This method is also called as units of activity and units of usage method of depreciation. In this method, depreciation is calculated based on number of units produced rather than useful life of an asset.In year, when number of units produced high will depreciate more amount and when number of units produced low will depreciate low amount.FormulaeDepreciation per unit = (cost – salvage value)/total estimated production unitDepreciation expenses = depreciation rate per unit * unit produced in a particular yearSteps involved are as follows −Calculate total number ... Read More

SolutionThe solution is given below −Total cost = cost of machinery + transportation + installation => 1500000 + 175000 + 75000 => Rs. 1750000/-Depreciation rate = 12%Year endedOpening balanceDepreciation amountClosing balance31-03-20151750000210000154000031-03-20161540000184800135520031-03-20171355200162624119257631-03-20181192576143109.121049466.8831-03-20191049466.88125936.0256923530.854431-03-2020923530.8544110823.702528812707.1518731-03-2021812707.1518797524.858224715182.29364631-03-2022715182.29364685821.8752375629360.4184131-03-2023629360.4184175523.250209553837.16820131-03-2024553837.16820166460.4601841487376.7080231-03-2025487376.7080258485.204962428891.50305831-03-2026428891.50305851466.980367377424.52269CalculationsDepreciation amount = opening balance * depreciation rateClosing balance = opening balance – depreciation amountFor year 31-03-2015Depreciation amount = 1750000 * 12% = 210000, closing balance = 1750000 – 210000 = 1540000Similarly, Depreciation amount and closing balances are calculate for respective yearsLedger for above statementsDateParticularsDebitCredit1st year (2014-15)01-04-2015Machinery A/CDr.1750000To bank175000031- marchDepreciation A/cDr.210000To machinery A/c210000(depreciation charges)31 – marchProfit/Loss A/cDr.210000To depreciation A/c210000Similarly, for rest of years’ leger will be prepared (only depreciation amount ... Read More

In diminishing balance method, depreciation is calculated on book value of the asset at the start of the year instead of principle amount with fixed percentage. In this, the percentage is same but depreciation amount gradually decreases as it is done on book value.FormulaDepreciation amount = (book value * rate of depreciation)/100Some of the merits of diminishing balance method are as follows −Recognised by income tax authorities.Minimises impact of obsolescence.Depreciation amount decreases year by year.Suitable for assets where scrap value equals to zero.Some of the demerits of diminishing balance method are as follows −Asset value can be zero.Interest is not ... Read More

Cost of the equipment = Rs. 10, 00, 000 Salvage value = Rs. 75, 000 Useful life = 8 yearsSolutionThe solution is given below −Step 1 − Calculate depreciation rate using straight line method.Depreciation rate using straight line method = 1/useful life => 1/8 => 12.5%Step 2 − Multiple depreciation rate in step 1 with 2 to get accelerated depreciation rate Accelerated depreciation rate = 2*12.5% => 25%Step 3 − Prepare depreciation table using double decline methodYearCost of the equipment at the start of the year (Rs)Depreciation rate (%)Amount depreciated RsBook value at the end of the year (Rs)1100000025250000750000275000025187500562500356250025140625421875442187525105468.75316406.255316406.252579101.5625237304.68756237304.68752559326.171875177978.515637177978.515632544494.6289075133483.88672Book value ... Read More

As the name suggest double declining, the asset is depreciated twice the rate than straight line method. It is also called accelerated depreciation. It does not mean depreciation is higher, it depreciates higher amount in initial years of asset and gradually depreciation expenses decrease in later years of the asset as compared to straight line depreciation.FormulaDouble decline balance method = 2 * cost of the asset * depreciation rateDouble declining balance method = 2 * (cost of the asset/useful life)Steps to calculate double declining method are as follows −Cost of asset (initial cost).Calculate salvage value.Determine life of the asset.Calculate depreciation ... Read More

SolutionThe solution is given below −Cost of machine = Rs. 200000 Salvage value = Rs. 25000 Total life = 8 yearsFormulaStraight line depreciation = (ADE) / (CA –SV)Here ADE = Annual depreciation expenses, CA = Cost of the asset, SV = Salvage valueFirst method (using salvage value)Cost of the asset – salvage value = 200000 – 25000 => 175000Annual depreciation = ((cost of the asset) – (salvage value))/life of machinery            = 175000/8            = 21875So by above calculations Rs. 21, 875 will be depreciated from 200000 annually for 8 years.Second method ... Read More

Straight line depreciation is the simple way to calculate depreciation. In this, a fixed amount is deducted from each accounting year of a firm. In straight line depreciation, firm depreciates equal amount from principle amount of an asset annually over its useful life. That means, every accounting year there will be change in asset value in balance sheet.FormulaStraight line depreciation = (cost of the asset – salvage cost) * depreciation rateStraight line depreciation = (cost of the asset – salvage value)/useful life of an assetStraight line depreciation for partial years = D * (Number of months/12)Where D is depreciation amount ... Read More