1. Manajemen Industri Instructor: Rama Oktavian
15/16 Semester 5
Manajemen Industri
Instructor: Rama Oktavian
Office Hr.: M , Tu , W , F

2. 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.

3. 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

4. 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

5. 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.

6. 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.

7. 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)

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

9. 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

10. Engineering economics
Straight Line Depreciation

11. Engineering economics

12. Engineering economics
Declining balance Methods

13. Engineering economics
Double Declining Balance (DDB)

14. Engineering economics
DDB Calculations

15. Engineering economics

16. Engineering economics

17. Engineering economics

18. 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.

19. Engineering economics

20. Engineering economics

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

22. 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

23. 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
$ (D)
$7, (D)
$13, (D)
$22, (D)
$113, (D)
$3,400, (D)
$5,150, (D)
$6,416, (D)
(D) denotes the taxable income in excess of the lower bound of each tax bracket
Contemporary Engineering Economics, 4th edition, © 2007

24. 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

25. 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

26. 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 15% $7,500
25% $6,250
34% $8,500
39% $90,480
Total taxes $112,730
Contemporary Engineering Economics, 4th edition, © 2007

27. Corporate tax in Indonesia:

28. Corporate tax in Indonesia:

29. Thank You !