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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.
 Spring '13
 paulbradley
 Economics

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