Answer:
the necessary account using the diminishing balance method for the given scenario:
1. Initial cost of the machine: ₦12,500
2. Depreciation rate: Let's assume a depreciation rate of 25% for this example.
3. Yearly Depreciation Expense:
- Year 1: 25% of ₦12,500 = ₦3,125
- Year 2: 25% of the remaining value (₦12,500 - ₦3,125) = ₦2,344
- Year 3: 25% of the remaining value (₦9,375 - ₦2,344) = ₦1,759
- Year 4: 25% of the remaining value (₦7,031 - ₦1,759) = ₦1,758.75
4. Carrying value of the machine:
- Year 0 (initial cost): ₦12,500
- Year 1: Initial cost - Year 1 depreciation expense = ₦12,500 - ₦3,125 = ₦9,375
- Year 2: Carrying value for Year 1 - Year 2 depreciation expense = ₦9,375 - ₦2,344 = ₦7,031
- Year 3: Carrying value for Year 2 - Year 3 depreciation expense = ₦7,031 - ₦1,759 = ₦5,272
- Year 4: Carrying value for Year 3 - Year 4 depreciation expense = ₦5,272 - ₦1,758.75 = ₦3,513.25
5. Scrap value at the end of Year 4: ₦5,120
Here's the necessary account using the diminishing balance method:
Year | Depreciation Expense | Carrying Value
---------------------------------------------
0 | | ₦12,500
1 | ₦3,125 | ₦9,375
2 | ₦2,344 | ₦7,031
3 | ₦1,759 | ₦5,272
4 | ₦1,758.75 | ₦3,513.25
Explanation:
In each year, the depreciation expense is subtracted from the previous year's carrying value to determine the new carrying value.
This necessary account showcases the annual depreciation expense and the carrying value of the machine over the 4-year period using the diminishing balance method. as you have seen the step by step in my awnser. i hope this helps.