## Introduction

Loan repayment can be made based on simple or compound interest. Asset depreciation can be calculated using the flat rate depreciation method or the reducing balance depreciation method.

## Sample Question

A brand new car which costs RM 100 000 is bought with a down payment of RM10 000 and a loan of RM90 000.

1. Bank X offers a loan which is to be ammortised with 60 monthly payments at an annual interest rate of 2.5%.

(a) Calculate the monthly payment to amortise the loan.

(b) Construct an amortisation schedule.

2 Bank Y offers a loan which is to he amortised with 60 monthly payments at an annual interest rate of 3% compounded monthly.

(a) Calculate the monthly payment to amortise the loan.

(b) Construct an amortisation schedule.

3 Which loan, from Bank X or Bank Y, you would suggest to the car owner? Give your reasons.

4 The car will depreciate to a scrap value of RM40 000 in 5 years.

(a) Using the flat rate depreciation method, find the depreciation rate of the car for the loan from Bank X and construct a table showing the year and the book value.

(b) Using the reducing balance depreciation method, find the depreciation rate of the car for the loan from Bank Y and construct a table showing the year and the book value.

(c) Determine, for each loan, the best year which has the minimum loss to the car owner if the car is to be sold within five years.

# Sample Solution

## Solution 1 a

According to the one of the school teacher, simple interest is used here.

## Solution 1 b

## Solution 2 a

## Solution 2 b

## Solution 3

Bank Y. Monthly payment is lower.

## Solution 4 a

## Solution 4 b

## Solution 4 c

Please ask your teacher if the formula are different.

Loss is calculated below using Book Value – total Payment paid to bank – loan balance – down payment. Assuming the car is sold at the end of the year.

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hi sir! may i ask for question 4c, how to determine the best year to sell the car? thanks

I used the formula stated above. The red one is the best year for me.

that’s mean the best year to sold is when the depreciation expenses is lowest?

Since it is not mentioned in the question, i used average loss

thanks sir!

Hi sir. I would like to know that are the answers for flat rate depreciation and reducing balance depreciation going to be the same?

I mean the table/schedule for question 4(a) and 4(b)

no. write pic was posted. Thanks for remind. 🙂

thanks sir.

hey sir,may i know how to built a title ? can give some example ? thx sir

“How to choose your car loan”

thanks sir. may i know how to gwt thw total payment in 4c ?

Please refer question 1 and 2

4 c what the question meaning ??

Find the year which gives the minimum loss. I used average loss to calculate.

hi sir, may i know the calculation formula for all the column in table answer 4(c)?

Hmmm.. In short, finding the average loss per year.

Sir, may I ask what should I include in the introduction?

No comment. Thanks

Is it possible to use a different method in determining yearly loss. Can I use the accummulated loss of a present year subtracted by the yearly loss of a previous year to determine yearly loss? My accumulated loss is defined as :present book value-total payment made-downpayment-outsatnding principal balance

It depends on your teacher. I have no answer from your school. 😛

Oh ok….Thank you very much for your assistance sir.It is much appreciated.

SIR, May I ask tat for ques 4c, wat is the reason to justify our ans? cuz my teacher said he can accept any ans as long as we are able to convince him. AND, I dn really understand y shud we find the average loss? Thanks

As your school teacher said, you can use any methods. So the method i used is to find average loss per year.

Hello sir, i want to ask about question 1.(a) .. can we use the formula such in question 2.(a) ?

Some school teachers said no.

Thank you very much sir ..

sir,based on your answer in 4(C) , so, the best year to sell the car is at the end of the year ?

yes

Hi Sir,

May I ask that:

Why the formula to calculate the loss do not include the Cost and Loan?

Since the cost is the cash outflow, and the loan is the cash inflow..

And the considering of Cost and Loan will also affect amount of the total loss for current year.

Therefore, may the formula to calculate the loss will be written as below?

Loss = Loan amount – initial book value + down payment – total payment to bank – loan balance + book value at the current year

You can use any of the formula as long as your teacher accept it.

Ok. Thx for answer me.. Have a good day ^^

SIR，how to do concluaion

Please ask your teacher. I am not going to teach on conclusion.

hi, sir..

i want to ask about the monthly payment for question 1b…

the answer is only that one?

Because my answer is 1597.62…

will my answer is wrong? The answer for other questions are the same with you..

It depends on your teacher