Manajemen Industri Instructor: Rama Oktavian 15/16 Semester 5 Manajemen Industri Instructor: Rama Oktavian Email: rama.oktavian86@gmail.com Office Hr.: M. 09-10, Tu. 13-15, W. 09-10, F. 09-11

Engineering economics Depreciation Basic Aspects of Depreciation An important component in computing income taxes. For tax purposes: Depreciation is the systematic allocation of the cost of an asset spread over its depreciable life.

Engineering economics Depreciation Definition - A decrease in value. In an economic context Market value Value to the owner In an accounting context a systematic allocation of the cost of an asset over its depreciable life. Depreciable life is related to Deterioration Obsolescence

Engineering economics Depreciation and Expenses Expenses - subtracted from business revenues as they occur (time frame < one year). Labor Utilities Materials Insurance, etc. Depreciation - subtracted from business expenses over time as the asset is used up (applies to assets with > 1 year useful life). Machinery Installation costs

Engineering economics 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 economics Classification of Property Tangible - can be seen, touched, and felt. Real - land, buildings, and things growing on, or attached to the land. Personal - equipment, furnishings, vehicles, office machinery, or not defined as real property. Intangible - has value but cannot be seen or touched, examples include patents, copyrights, and trade marks. In general buildings and equipment are depreciable; land is not.

Engineering economics Depreciation Methods Historical methods Straight line Sum-of-years digits Declining balance Declining balance switching to straight line Modified accelerated cost recovery system (MACRS)

Engineering economics Straight line Methods Salvage value is the estimated resale value of an asset at the end of its useful life

Engineering economics Consider the following example: Cost basis of an asset (B) = $900 Useful life in years (N) = 5 Salvage value (S) = $70 Notes: Cost basis includes installation and other “one-time” costs associated with making the asset ready for use Salvage value (if used) is estimated or based on accounting practices and procedures

Engineering economics Straight Line Depreciation

Engineering economics

Engineering economics Declining balance Methods

Engineering economics Double Declining Balance (DDB)

Engineering economics DDB Calculations

Engineering economics

Engineering economics

Engineering economics

Engineering economics MACRS Modified Accelerated Cost Recovery System MACRS is the system presently used by the US government. General Method (IRS FORM 4562): Determine item cost. Determine item property class. Use table to find percent depreciation. Multiple percentage by cost.

Engineering economics

Engineering economics

Engineering economics 1. Corporate income tax 2. Withholding tax 3. Value-added tax 4. Border taxes 5.Transfer tax Taxes

Engineering economics Corporate Income Taxes Taxable Income and Income Taxes Item Gross Income Expenses Cost of goods sold (revenues) Depreciation Operating expenses Taxable income Income taxes Net income

U.S. Corporate Tax Rate (2005) Taxable income 0-$50,000 $50,001-$75,000 $75,001-$100,000 $100,001-$335,000 $335,001-$10,000,000 $10,000,001-$15,000,000 $15,000,001-$18,333,333 $18,333,334 and Up Tax rate 15% 25% 34% 39% 35% 38% Tax computation $0 + 0.15(D) $7,500 + 0.25 (D) $13,750 + 0.34(D) $22,250 + 0.39 (D) $113,900 + 0.34 (D) $3,400,000 + 0.35 (D) $5,150,000 + 0.38 (D) $6,416,666 + 0.35 (D) (D) denotes the taxable income in excess of the lower bound of each tax bracket Contemporary Engineering Economics, 4th edition, © 2007

Marginal and Effective (Average) Tax Rate for a Taxable Income of $16,000,000 Marginal Tax Rate Amount of Taxes Cumulative Taxes First $50,000 15% $7,500 Next $25,000 25% 6,250 13,750 34% 8,500 22,250 Next $235,000 39% 91,650 113,900 Next $9,665,000 3,286,100 3,400,000 Next $5,000,000 35% 1,750,000 5,150,000 Remaining $1,000,000 38% 380,000 $5,530,000 Contemporary Engineering Economics, 4th edition, © 2007

Example 8.10 - Corporate Income Taxes Facts: Capital expenditure $100,000 (allowed depreciation) $58,000 Gross Sales revenue $1,250,000 Expenses: Cost of goods sold $840,000 Depreciation $58,000 Leasing warehouse $20,000 Question: Taxable income? Contemporary Engineering Economics, 4th edition, © 2007

Taxable income: Gross income $1,250,000 - Expenses: (cost of goods sold) $840,000 (depreciation) $58,000 (leasing expense) $20,000 Taxable income $332,000 Income taxes: First $50,000 @ 15% $7,500 $25,000 @ 25% $6,250 $25,000 @ 34% $8,500 $232,000 @ 39% $90,480 Total taxes $112,730 Contemporary Engineering Economics, 4th edition, © 2007

Corporate tax in Indonesia: http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-indonesiaguide-2014.pdf

Corporate tax in Indonesia: http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-indonesiaguide-2014.pdf

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