Depreciation and Corporate Finance Exercise

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CORPORATE FINANCE EXERCISE 2012-2013 ---------------------------------------------------------------------------------------------------------------------------------CHAPTER 4. ASSETS IN A COMPANY

EXERCISE 1 In order to run the business effectively, Enterprise X purchased a set of 4 computers by the beginning of Year N+1. Its purchasing price is 15 million VND per item (excluding VAT). The total transportation and testing cost is 5 million VND. Their estimated useful life is 5 years. Required: 1. You are asked to create a depreciation table for these equipments, using these following methods: a. Straight line method b. Double declining balance method c. Sum of years’ digits method 2. Compare their depreciation expenses and rates, then comment on their capital recovery rates. (Assume that this enterprise pay VAT by the tax deduction method)

EXERCISE 2 A forestry joint stock company borrowed Vietcombank money to purchase a timber dryer from Japan with the interest of 5% per year. This machine was imported from Osaka port at the FOB price of 150.000 USD. Its total weight is 62 tons, transportation cost from Osaka port to Haiphong port is 10 USD per ton. For sercure, the company signs an insurance contract with Baoviet Ltd. Company. The insurance cost is 0,1% of the purchasing price. Transportation cost to the company is 20 million VND. Tetsing expense is 15 million VND. The period since the loan was activated until the machine was ready to be used is 6 months. The loan is valid for 6 months, and the interest is expected to paid at the same time with the original amount. The import tax is 20% and VAT is 5%. -1-

CORPORATE FINANCE EXERCISE 2012-2013 ---------------------------------------------------------------------------------------------------------------------------------Required: According to the machine’s enclosure, its estimated useful life is 5 year. If the company decides to apply Double declining balance method, calculate the machine’s annual...
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