Methods of Calculating Depreciation §
Straight-line / Prime-cost / Flat Rate method
Unit Cost method
Reducing / Declining / Diminishing balance method
for the love of god take the thing out of
Flat Rate (Simple Interest) §
In this method the value decreases lineraly (by a fixed amount) each year. the amont it loses per year does not change. the cost is “spread out evenly acros it’s lifespan”
Extra close brace or missing open brace asset}}=\text{Per Year Depreciation Amount}$$ Where; Residual Value = The minimum possible value of the asset Cost = The *initial* cost of the asset Useful life of the asset (in terms of years / the context prob) This can be modelled with a [[Arithmetic Sequences]] e.g. $T_n=a+(n-1)d$ Where: $d$ = amount lost per year, $a$ = Principal, $n$ = number of years >[!example]- > >A Production machine costs \$500,000 it's useful like will end after producing 240,000 units of a component part. It's scrap / residual value is \$20,000, and the machine produces 10,000 units per year. >a) What is the annual depreciation >$$\frac{Cost - \text{Residual Value}}{\text{Useful life of the asset}}=\frac{500,000 - 20,000}{(240,000 \div 10000)}=\text{\$20,000 Per Year}$$ ### Unit Cost (based on usage) e.g. The amount of k's on your car, or hours the product was used for. $$\text{Depreciation p/unit}=\frac{Cost-\text{Residual Value}}{\text{\color{green}Total number of units produced}}$$ >[!example]- A Machine with value **$\$330,000$**, and Residual Value of **$\$50,000$** produces **10,000** units a year, and **140,000** in it's lifetime. Calculate the depreciation expense for the first year and the book value of the machinery after the first year. > > $$ \text{ Dep. Cost p/unit}= \frac{330,000-50,000}{140,000}=\color{green}\$2 \text{ p/Unit}$$ $$2 \times 10,000= \boxed{\$20,000} \text{ <- Depreciation Expense}$$ $$\$330,000 - \$20,000 = \boxed{\$310,000} \text{ <- Book Value Aft. 1y}$$
