Applied Mathematic Preliminary General 1 Depreciation Declining Balance

Applied Mathematic (Preliminary General 1) Depreciation Declining Balance Stage 6 - Year 11 Press Ctrl-A ©G Dear 2011 – Not to be sold/Free to use 1

Declining Balance Method (1/) Great Wall V 240 Super Luxury K 2 2010 Year 0 $24, 990 x 0. 8 Year 1 $19, 992 x 0. 8 Year 2 $15, 994 x 0. 8 Year 3 $12, 795 x 0. 8 Year 4 $10, 236 x 0. 8 Year 5 $8, 189 x 0. 8 Year 6 $6, 551 After 6 Years $23, 990 The vehicle is depreciated at 20% per annum. It will be sold when its value falls below $7, 000. When ? ? ? 2

Declining Balance Method (2/) • Value of asset declines by a constant amount each year. $ • Salvage Value: S = V 0 (1 -r)n S = Salvage Value V 0 = Purchase price n = Number of Periods Youtube Video DDB VDB 3

Declining Balance Method (3/) • A boat is bought for $30 000 & depreciates at 20% per annum. Calculate the salvage value after 7 years. S = V 0 (1 -r)n 7 S = 30 000 x (1 -0. 2. ) Purchase Price 1 -Annual Number Depreciation of periods = $ 6 291. 46 4

Declining Balance Method (4/) A plane is bought for $300 000 and depreciates at 15% per annum. It is replaced when the salvage value is $100 000. How long till it is replaced? S = V 0 (1 -r)n n 100 000 = 300 000 (1 - 0. 15 ) Salvage Value Purchase Price 1 -Annual Number Depreciation of periods n x 0. 85 100 000 = 300 000. ÷ 300 000 0. 85 n = 0. 3 n ≈ 6. 75 years By trial and error 5