Reginald A. BakerB-227

Problem 1Seven years ago, Rocco's drum kit cost him 12500. It has now been valued at 2300. What rate of simple depreciation does this represent?Answer :

A = P(1 - in) 2300 = 12500(1 (i 7))

= 1 7i 0.184 1 = -7i

= i

Therefore: i = 11.66%

Problem 2 A second-hand farm tractor worth R60000 has a limited useful life of 5 years and depreciates at 20% p.a. on a reducing-balance basis. Determine the value of the tractor at the end of each year over the 5 year period. = 60000I = 0.2n = 5

When we calculate depreciation using the reducing-balance method:1. The depreciation amount changes for each year.2. The depreciation amount gets smaller each year.3. The book value at the end of a year becomes the principal amount for the next year.4. The asset will always have some value (the book value will never equal zero).

YearBook valueDepreciationValue at end of year

1R60000R48000

2R48000R38400

3R38400R30720

4R30720R24576

5R24576R19660,80

Problem 3Farmer Jack bought a tractor and it has depreciated by 20% p.a. on a reducing-balance basis. If the current value of the tractor is $52429, calculate how much Farmer Jack paid for his tractor if he bought it 7 years ago.Answer

Substitute the values and solve for

Therefore: 7 years ago, Farmer Jack paid $250000 for his tractor.