DEPRECIATION Section: Advanced Agribusiness Unit: Depreciation Lesson Titles: Understanding Depreciation.

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Presentation transcript:

DEPRECIATION Section: Advanced Agribusiness Unit: Depreciation Lesson Titles: Understanding Depreciation

Straight Line Depreciation PURCHASE PRICE MINUS SALVAGE VALUE DIVIDED BY USEFUL LIFE

Straight Line Example $25000 pickup with $1000 salvage value depreciated over six years: $25000 – $1000 / 6 = $4000 depreciation per year

Declining Balance Method of Depreciation Book Value / Useful Life X Acceleration Factor

Declining Balance Depreciation Double Declining Balance uses an acceleration factor of 2 Time and a half declining use an acceleration factor of 1.5

Double Declining Method Example $30000 pickup $5000 salvage value 5 year useful life Year 1 depreciation = $30000/5 X 2 = $12000 Year 1 ending book value = $18000 Year 2 depreciation = $18000/5 X 2 = $7200 Year 2 ending book Value = $10800 Year 3 depreciation = $10800/5 X 2 = $4320 Year 3 ending book Value = $6480 Year 4 depreciation = $6480 /5 X 2 = $2592 We are only allowed to depreciate a value equal to the salvage value so $ $5000 = $1480 year 4 depreciation

Time and a Half Declining Balance $30000 PICKUP $5000 SALVAGE VALUE 7 YEAR USEFUL LIFE YEAR 1 DEPRECIATION = 30000/7 X 1.5 = $6429 YEAR 1 ENDING VALUE = YEAR 2 DEPRECIATION = 23571/7 X 1.5 = $5051 YEAR 2 ENDING VALUE = YEAR 3 DEPRECIATION = 18520/7 X 1.5 = $3969 YEAR 3 ENDING VALUE = 14551

Sum of the Year Digits The years digits are added. Using the sum of the digits a fraction is used to determine how much depreciation is taken EXAMPLE 5 YEAR PROPERTY = 15 YEAR 1 5/15 X TOTAL DEPRECIATION = 1ST YEAR DEPRECIATION