CFOS Unit3/Exercise 3.4 - Answers
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Exercise 3.4 - Answer Sheet
If you prepare a table using the Simple Depreciation and Annualization methods, the annual depreciation or loss of value for the computer equipment would be as follows:
| Simple Depreciation Method | Annualization Method | |
|---|---|---|
| Initial Capital Cost of PCs | 2,400,000 | 2,400,000 |
| Year 1 | 400,000 | 506,400 |
| Year 2 | 400,000 | 506,400 |
| Year 3 | 400,000 | 506,400 |
| Year 4 | 400,000 | 506,400 |
| Year 5 | 400,000 | 506,400 |
| Year 6 | 400,000 | 506,400 |
| Total Amount Depreciated | 2,400,000 | 3,038,400 |
Because you are comparing two possible alternative uses for this money, the most appropriate method to use in this situation is Annualization.
