Lecture 28 - The Most Taxing Questions or We Depreciate You

Salvage factor factor n t 1soyd n number years

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Unformatted text preview: (N – t + 1)/(SOYD) N= number years depreciable life t = the current year for example depreciation in year the three would have t = 3 three SOYD = Sum of Years Digits If life is 5 years then SOYD = 5 + 4 + 3 + 2 + 1 = 15 There is a formula to save you undignified counting N * (N+1)/2 = SOYD Application Application If Earnest Depreciated his truck by SOYD Basis = $700,000 (assume no salvage) Factor 1 =(7 – 1 + 1)/ ((7/2)*(7+1)) = 0.25 Depreciation Year 1 = $700,000*0.25= $175,000 Year 2 6/28*$700,000 = $150,000 Year 3 5/28*$700,000 = $125,000 Year 4 4/28*$700,000 = $100,000 Year 5 3/28*$700,000 = $75,000 Year 6 2/28*$700,000 = $50,000 Year 7 1/28*$700,000 = $25,000 Declining Balance Methods Declining Need one more term – Book Value Book Value = (Cost Basis – Salvage – Depreciation Book Taken to Date) Taken Annual Depreciation = Book Value * Dbalance Annual factor factor Dbalance factor = (% rate)/(100*N) where N is Dbalance the life of the item the Percentage rate is any ratio of initial depreciation to Percentage straight line that is desired straight Ie the system has infinite adaptations In practice 150% and 200% are historical conventions Lets Do Earnest’s Truck with 150% Declining Balance 150% Book Value 1 = $700,000 Dbalance factor 1 = 150/(100*7) = Dbalance 0.214286 0.214286 Depreciation Year 1 = $150,000 Note that Dbalance factor will not change Note like with SOYD, but Book Value will like Year 2 0.214286*($700,000 – 150,000) = $117,857 Continuing Continuing Year 3 0.212486*(700,000 – 267854)=$92,602 Year 4 0.212486*(700,000 – 360,459) = $72,759 Year 5 0.212486*(700,000 – 433,218) = $57,168 Year 6 0.212486*(700,000 – 490,386) = $44,917 Year 7 0.212486*(700,000 – 535,303) = $35,292 Year 8 0.212486*(700,000 – 570,595) =...
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This note was uploaded on 02/02/2013 for the course ECON 361 taught by Professor Paulbradley during the Spring '13 term at SIU Carbondale.

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