- 2076 Shrawan · 6 marks
DDB with switchover to straight line
Short answer
Using DDB with switchover to straight-line, annual depreciation is Rs 8,571, 6,122, 4,373, 3,124, 2,603, 2,603, 2,603 for years 1–7. Book values end at Rs 0. Switch occurs in year 5 when SL charge (2,603) exceeds DDB.
Compute the annual depreciation allowances and the resulting book value using the double declining balance method with switchover to straight line method. Cost of asset = Rs 30,000, useful life = 7 years, salvage value = 0.
Data: P = 30,000; N = 7; S = 0. DDB rate = 2/N = 2/7 = 28.57% of the opening book value. Switch to straight-line (SL) in the first year where the SL charge on the remaining book value, BV/(remaining years), is at least the DDB charge.
DDB charge_k = (2/7) × BV_(k−1)
SL charge_k = BV_(k−1) / (7 − k + 1)
Depreciation = larger of the two
| Year | Opening BV | DDB | SL on remaining | Depreciation | Closing BV |
|---|---|---|---|---|---|
| 1 | 30,000 | 8,571 | 4,286 | 8,571 | 21,429 |
| 2 | 21,429 | 6,122 | 3,571 | 6,122 | 15,306 |
| 3 | 15,306 | 4,373 | 3,061 | 4,373 | 10,933 |
| 4 | 10,933 | 3,124 | 2,733 | 3,124 | 7,809 |
| 5 | 7,809 | 2,231 | 2,603 | 2,603 | 5,206 |
| 6 | 5,206 | 1,487 | 2,603 | 2,603 | 2,603 |
| 7 | 2,603 | 744 | 2,603 | 2,603 | 0 |
Switchover occurs in year 5, where SL = 7,809 / 3 = 2,603 exceeds DDB = 2,231. The charge stays at 2,603 for years 5, 6 and 7, and the book value reaches 0 at the end of year 7.
Answer: Annual depreciation = 8,571, 6,122, 4,373, 3,124, 2,603, 2,603, 2,603 for years 1 to 7; book values = 21,429, 15,306, 10,933, 7,809, 5,206, 2,603, 0.
✓ Answer checked by Claude Opus 5.5 (high effort)
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