1 Press Ctrl-A ©G Dear 2011 – Not to be sold/Free to use Depreciation Straight Line Stage 6 - Year 11 Applied Mathematic (Preliminary General 1)

2 Modeling Depreciation (1/6) Assets include things such as automobiles, computers, furniture, house and equipment.Assets include things such as automobiles, computers, furniture, house and equipment. The only asset that rarely declines in value is land.The only asset that rarely declines in value is land. The definition of depreciation is “the decline in the useful life of a fixed asset over time”.The definition of depreciation is “the decline in the useful life of a fixed asset over time”. Press You Tube Video These assets have a set amount of useful life. This means that an asset is not expected to last forever, and so its value depreciates over time.These assets have a set amount of useful life. This means that an asset is not expected to last forever, and so its value depreciates over time.

3 The 2 main types of depreciation. a) Straight line depreciation. $ $ It loses a constant amount each period. b) Declining Balance depreciation. It loses a varying amount each period. An exponential curve. Decay Modeling Depreciation (2/6)

4 Great Wall V240 Super Luxury K Depreciation Tables (2/6) $23,990 The vehicle is depreciated at $3,000 per year. It will be sold when its value falls below $7,000. When ??? Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $23,990 -$3,000 $20,990 -$3,000 $17,990 -$3,000 $14,990 -$3,000 $11,990 -$3,000 $8,990 -$3,000 $5,990 After 6 Years

5 $ Value of asset declines by a constant amount each year. Salvage Value: S = V 0 - Dn S = Salvage ValueV 0 = Purchase price D = Annual Depreciationn = Number of Periods Press You Tube Video Modeling Depreciation (3/6)

6 A boat is bought for $ and depreciates at $1,500/annum. Calculate the salvage value after 7 years. S = V 0 - Dn S =S = x 7 = $ Purchase PriceAnnual DepreciationNumber of periods Modeling Depreciation (5/6)

7 A plane is bought for $ and depreciates at $25 000/annum. If it is replaced when the salvage value is $100,000, how long till it is replaced? S = V 0 - Dn = Salvage Value Purchase Price Annual Depreciation n Number of periods n n = n = ÷25000 n = 8years Modeling Depreciation (6/6)