The following information is obtained from Gamo private limited company. The book value of a pool of computer in the opening balance sheet of the tax period as of Hamle 1, 2012 was birr 150,000. During the year 2012:

Question

( Gamo bought data storage equipment for birr 75,000, software products for birr 50,000.
( The existing computer was upgraded and renewed for birr 12,000.
( Gamo has also received Birr 15,000 as compensation from Yetu computer, supplier, since some of storage equipment are not functioning.
( Gamo also sold two old computers and received birr 8,500
Required:
1. Determine depreciation base of computer?
2. Determine depreciation expense of computer

Answer 1

To determine the depreciation base and the depreciation expense of the computers owned by Gamo Private Limited, we will follow these steps:

1. Determine the Depreciation Base of Computers

The depreciation base is calculated by taking the initial book value of the computer pool and adjusting it for any additions or deductions, such as purchases, upgrades, and sales.

Opening Book Value:

• Initial Book Value of Computers: 150,000 Birr

Purchases and Upgrades:

• Purchased Data Storage Equipment: 75,000 Birr
• Purchased Software Products: 50,000 Birr
• Upgrading/Renewal of Existing Computers: 12,000 Birr

Total Additions: \[ 75,000 + 50,000 + 12,000 = 137,000 \text{ Birr} \]

Deductions:

• Compensation Received for Non-Functional Equipment: (15,000 Birr)
• Sale of Old Computers: (8,500 Birr)

Total Deductions: \[ 15,000 + 8,500 = 23,500 \text{ Birr} \]

Calculation of Depreciation Base:

\[ \text{Depreciation Base} = \text{Initial Book Value} + \text{Total Additions} - \text{Total Deductions} \] \[ \text{Depreciation Base} = 150,000 + 137,000 - 23,500 = 263,500 \text{ Birr} \]

2. Determine the Depreciation Expense for Computers

To calculate the depreciation expense, we need to know the useful life of the computers and the applicable depreciation method. However, since you haven't provided the useful life or the depreciation method, we will assume a straight-line depreciation method as an example.

Let's assume:

• Useful Life of Computers: 5 years
• Salvage Value: 0 Birr (assuming all value is depreciated)

Annual Depreciation Expense Calculation: Using the straight-line method, the formula for annual depreciation expense is:

\[ \text{Annual Depreciation Expense} = \frac{\text{Depreciation Base} - \text{Salvage Value}}{\text{Useful Life}} \]

Substituting the values: \[ \text{Annual Depreciation Expense} = \frac{263,500 - 0}{5} = 52,700 \text{ Birr} \]

Summary:

1. Depreciation Base: 263,500 Birr
2. Depreciation Expense: 52,700 Birr per year (assuming straight-line method and 5-year useful life)

Feel free to adjust the assumptions or provide more details if needed!