To calculate the depreciation claimed for the year 1999 under the prime cost method, we first need to determine a few key details, including the depreciation calculated under the diminishing value method for the earlier years and the new depreciation rates under the prime cost method.
Step 1: Diminishing Value Method (for 1997 and 1998)
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Cost of Equipment: K850,000
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Useful Life or Depreciation Rate (assumed): For this example, let’s assume a rate that is commonly used, such as 20% per annum for the diminishing value method.
The depreciation for each year can be calculated as follows:
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1997: \[ \text{Depreciation} = \text{Cost} \times \text{Depreciation Rate} = 850,000 \times 20% = K170,000 \]
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Written Down Value at the end of 1997: \[ \text{WDV} = \text{Cost} - \text{Depreciation} = 850,000 - 170,000 = K680,000 \]
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1998: \[ \text{Depreciation} = 680,000 \times 20% = K136,000 \]
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Written Down Value at the end of 1998: \[ \text{WDV} = 680,000 - 136,000 = K544,000 \]
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Step 2: Prime Cost Method (from 1 January 1999)
For the prime cost method (straight line method), let’s assume that the same useful life of the asset was initially considered (e.g., 5 years). Thus, the annual depreciation can be calculated by:
- Useful Life: 5 years
- Annual Depreciation: \[ \text{Annual Depreciation} = \frac{\text{Cost}}{\text{Useful Life}} = \frac{850,000}{5} = K170,000 \]
Step 3: Depreciation Claimed for 1999
Since the company switched to the prime cost method as of 1 January 1999, the amount of depreciation claimed for 1999 will be K170,000.
Step 4: Written Down Value at the End of 1999
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Written Down Value at the beginning of 1999: This is the WDV at the end of 1998, which we calculated as K544,000.
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Depreciation to be deducted for 1999: \[ \text{Depreciation for 1999} = K170,000 \]
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Written Down Value at the end of 1999: \[ \text{WDV at end of 1999} = \text{WDV at beginning of 1999} - \text{Depreciation for 1999} \] \[ \text{WDV at end of 1999} = 544,000 - 170,000 = K374,000 \]
Summary
- Depreciation Claimed for 1999: K170,000
- Written Down Value at the End of 1999: K374,000
These calculations assume specific depreciation rates and useful life; please adjust them based on the actual rates applicable to your scenario if they differ.