11/07/2009

PME Tutorial 1: Depreciation

Since the finals is coming this Tue, I should have some interest in what I'm studying. 

Pfft. 

Depreciation is the systematic allocation of an asset's cost over its depreciable life. Business assets can be depreciated only if they meet the following basic requirements:
  • The property must be used for business purposes to produce income.
  • The property must have a useful life that can be determined, & this life must be longer than 1 yr.
  • The property must be an asset that decays/gets used up/wears out/becomes obsolete/loses value to the owner from natural causes.
The general equation is:

There are 3 depreciation methods (that I understand so far :p):

1. Straight-line depreciation

2. Sum-of-years'-digits depreciation

3. Declining balance depreciation


Consider the following example:

B=$900, N=5yrs, S=$70

1. SL depreciation

2. SOYD depreciation

3. DB depreciation

Both methods achieve the same result (S=$70 in year 5) but the graphs would differ. 

There, I kinda remember how to utilize these 2 methods. Mission accomplished :p

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