Ch11 - Engineering Economic Analysis - Ninth Edition

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 1 Engineering Economic Analysis 9th Edition Chapter 11 DEPRECIATION Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 2 Depreciation is the systematic allocation of the cost of an asset spread over its depreciable life. Basic Aspects of Depreciation • An important component in computing income taxes. • For tax purposes: Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 3 Depreciation • In an economic context • Definition: A decrease in value • Market value • Value to the owner • In an accounting context • Definition: a systematic allocation of the cost of an asset over its depreciable life. Related to • Deterioration • Obsolescence Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 4 Depreciation and Expenses • Expenses: subtracted from business revenues as they occur. • Labor • Utilities • Materials • Insurance, etc. • Depreciation: subtracted from business expenses over time as the asset is used up. • Machinery • Installation costs Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 5 Depreciation for Tax Purposes • Depreciable life: the period over which an asset is depreciated (recovery period). • Depreciation is a non-cash cost: money does not change hands during the recovery period. • Depreciation is used to allocate an asset’s loss of value over time. • Depreciation is deducted from revenue and reduces the taxable income of a business over time. • Depreciation is a cash flow on an after tax-basis. Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 6 A Property is Depreciable If • The property is used for business purposes in the production of income. • The property has a useful life that can be determined, and the useful life is longer than one year. • The property decays, gets used up, wears out, becomes obsolete or loses value from natural causes. Engineering Economic Analysis - Ninth Edition Newnan/Eschenbach/Lavelle Copyright 2004 by Oxford University Press, Inc. 7 In general, buildings and equipment are depreciable; land is not....
View Full Document

This note was uploaded on 04/07/2008 for the course IMSE 530 taught by Professor Chang during the Fall '07 term at Kansas State University.

Page1 / 13

Ch11 - Engineering Economic Analysis - Ninth Edition

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online