Question

Your organisation has purchased a new photocopier at a cost of $17,000. The purchase was made in July so there is no need to calculate depreciation for part of the first year. The copier will be outdated and written off after five years at a book value of zero.

Describe how to use the diminishing value method and the prime cost method, and detail the cost each year to be allocated for reporting purposes and show the book value during each year.

Show your results in a table with comparisons between the two methods:-

	Diminishing	value	Prime	Cost
	Cost Pa	Book Value	Cost Pa	Book Value
At Purchase
Year 1
Year 2
Year 3
Year 4
Year 5

Please type up your answer and explain how did you come up with the calculation!

Answer 1

The prime cost method assumes that the value of a depreciating asset decreases uniformly over its effective life.
Under diminishing value method ,			Under Prime cost method
	Cost	Book value	Cost	Book value
Purchase	$17,000		$17,000
Year 1	$3,400.0	$13,600.0	$3,400	$13,600
Year 2	$2,720.0	$10,880.0	$3,400	$10,200
Year 3	$2,176.0	$8,704.0	$3,400	$6,800
Year 4	$1,740.8	$6,963.2	$3,400	$3,400
Year 5	$1,392.6	$5,570.6	$3,400	$0
		Write off fully
Assmuption: Calendar year you follow.
Depreciation rate under Dimisihing value
(1-(salvage value/original value)1/useful life)*100
20%