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Oman Water Company purchases equipment on January 1, 2015, at a cost of OMR 60000. The asset is expected to have a service life of
Oman Water Company purchases equipment on January 1, 2015, at a cost of OMR 60000. The asset is expected to have a service life of 5 years and a residual value of OMR 10000. Instructions: (a) Calculate annual rate of depreciation. Amount of depreciation for each from 2015 to 2018 using the straight-line depreciation method. [4 Marks] (b) Calculate the amount of depreciation for each from 2015 to 2018 using the reducing balance method. [3 Marks] (c) What would be the difference in the depreciation expense for the year ending 31st December 2017 based on using either the straight-line method or the reducing-balance method? [1 Mark] (d) on what basis should management select from these two methods to depreciate the machine? Justify in your own words. [1 Mark] (e) What do you feel may be the difference between these two methods of computing depreciation? Explain in your own words. [1 mark]
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