Slide 1 © 2002 McGraw-Hill Australia, PPTs t/a Introductory Mathematics & Statistics for Business 4e by John S. Croucher Depreciation n Learning Objectives Calculate depreciation rates using the prime cost (straight line) method Calculate depreciation rates using the diminishing value (reducing balance) method Calculate depreciation rates using the units-of-production method Calculate the current written down value (book value) of an asset Learn how to keep depreciation records Chapter M8

Slide 2 © 2002 McGraw-Hill Australia, PPTs t/a Introductory Mathematics & Statistics for Business 4e by John S. Croucher Depreciation n Depreciation n Depreciation is the gradual reduction in the value of fixed assets over their useful life. n Depreciation expense n Depreciation expense refers to the actual loss of value in dollar terms.

Slide 3 © 2002 McGraw-Hill Australia, PPTs t/a Introductory Mathematics & Statistics for Business 4e by John S. Croucher Depreciable assets Include: n Plant and equipment computers, tools, furniture, motor vehicles, machinery, etc. n Working animals racehorses, other animals not used in primary production n Structural improvements fences, dams, new roofs, etc. n Software

Slide 4 © 2002 McGraw-Hill Australia, PPTs t/a Introductory Mathematics & Statistics for Business 4e by John S. Croucher Depreciation methods n Prime coststraight line n Prime cost or straight line method: calculated each year on the original cost of the asset fixed sum each year.

Slide 5 © 2002 McGraw-Hill Australia, PPTs t/a Introductory Mathematics & Statistics for Business 4e by John S. Croucher Depreciation methods n Diminishing valuereducing balance n Diminishing value or reducing balance method: calculated on the book value or the remaining written down value each year smaller amount each year; highest in earlier years.

Slide 6 © 2002 McGraw-Hill Australia, PPTs t/a Introductory Mathematics & Statistics for Business 4e by John S. Croucher Depreciation methods n Units-of-production method useful life is a measure of output not common in Australia suitable for depreciation of tyres on a vehicle, photocopiers,machine parts, etc.

Slide 7 © 2002 McGraw-Hill Australia, PPTs t/a Introductory Mathematics & Statistics for Business 4e by John S. Croucher Depreciation rates effective life n Fixed by effective life of the asset –the longer the effective life, the lower its depreciation rate n Salvage value n Salvage value is the estimated value at the end of an asset’s useful life n Taxation system depreciation rates n Taxation system sets approved depreciation rates –depend on when assets were acquired

Slide 8 © 2002 McGraw-Hill Australia, PPTs t/a Introductory Mathematics & Statistics for Business 4e by John S. Croucher Depreciated value n Often called book value or written down value Book value = Original cost of asset - depreciation to date