© T Madas DEPRECIATION. Depreciation is the loss in value of certain items through usage, wear and tear, age etc. Typical items subject to depreciation:

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Presentation transcript:

© T Madas DEPRECIATION

Depreciation is the loss in value of certain items through usage, wear and tear, age etc. Typical items subject to depreciation: Cars and generally all vehicles Expensive electric/electronic equipment Factory Machinery Depreciation is usually given as a percentage Depreciation is calculated the same way we calculate compound interest.

A farm vehicle cost £40000 when new. Each year it depreciates in value by 20% x x x x x end of yearcalculationstart of year The truck lost £8000 from its original value in a year. Why is not sensible to say that it will lose £8000 every year? What will its value be in 6 years time if that was true?

© T Madas A farm vehicle cost £40000 when new. Each year it depreciates in value by 20% x x x x x end of yearcalculationstart of year Original value depreciation as a % multiplier years 40000x (0.8) 5

© T Madas

A factory bought a new piece of machinery for £ The machinery depreciates at the rate of 10% per annum. 1. Calculate the value of the machinery after 6 years. 2. After how many years will this piece of machinery be worth less than £8000? Original value depreciation as a % multiplier years 80000x (0.9) 6

© T Madas A factory bought a new piece of machinery for £ The machinery depreciates at the rate of 10% per annum. 1. Calculate the value of the machinery after 6 years. 2. After how many years will this piece of machinery be worth less than £8000? 80000x (0.9) 6

© T Madas A factory bought a new piece of machinery for £ The machinery depreciates at the rate of 10% per annum. 1. Calculate the value of the machinery after 6 years. 2. After how many years will this piece of machinery be worth less than £8000? 80000x (0.9) 6

© T Madas A factory bought a new piece of machinery for £ The machinery depreciates at the rate of 10% per annum. 1. Calculate the value of the machinery after 6 years. 2. After how many years will this piece of machinery be worth less than £8000? 80000x (0.9) 6 £ = n = x(0.9) 10 ≈£ n = x(0.9) 15 ≈£ n = x(0.9) 20 ≈ £ n = x(0.9) 21 ≈ £ n = x(0.9) 22 ≈ £

© T Madas