Depreciation - Straight-Line Method

1. A car had a book value of $134,400 a year ago. Today it is worth $116,400. What was the
percentage of depreciation suffered by the car?

Approach and/or formula:

M−VE
d=
Mt

134400−116400 18000
d= = =0.133928 ( 100 ) =13.3928
134400 ( 1 ) 134400

d = 13.3928%

Respuesta: 13.39%

2. A machine that costs $925,000 has an estimated useful life of 8 years. At the end of that time, it ...

calculate that it has a salvage value of $100,000. Calculate the total depreciation, the depreciation
annual and prepare the depreciation table.

Approach and/or formula:

DT=C−S
DT=925000−10000=825000
DT = $825,000

Approach and/or formula:

DT
D=
n
825000
D= =103125
8
D=$103,125

End of year Annual depreciation Accumulated depreciation Book value

0 $ 925,000.00
1 $ 103,125.00 $ 103,125.00 $ 821,875.00
2 $ 103,125.00 $ 206,250.00 $ 718,750.00
3 $ 103,125.00 $ 309,375.00 $ 615,625.00
4 $ 103,125.00 $ 412,500.00 $ 512,500.00
5 $ 103,125.00 $ 515,625.00 $ 409,375.00
6 $ 103,125.00 $ 618,750.00 $ 306,250.00
7 $ 103,125.00 $ 721,875.00 $ 203,125.00
8 $ 103,125.00 $ 825,000.00 $ 100,000.00
Respuesta: $825,000, $103,125
3. Calcule la depreciación anual de un automóvil que cuesta $354,000, considerando una vida útl de 5 años
and a salvage value equal to 20% of the cost of the car. Prepare the depreciation table.
Data
C = 354000
S = 354000(20%) = 70800
n = 5 years

Approach and/or formula:

C−S
D=
n

354000−70800 283200
D= = =56640
5 5

D=$56,640

End of year Annual depreciation Accumulated depreciation Book value

0 $ 354,000.00
1 $ 56,640.00 $ 56,640.00 $ 297,360.00
2 $ 56,640.00 $ 113,280.00 $ 240,720.00
3 $ 56,640.00 $ 169,920.00 $ 184,080.00
4 $ 56,640.00 $ 226,560.00 $ 127,440.00
5 $ 56,640.00 $ 283,200.00 $ 70,800.00
Respuesta: $56,640

4. A company purchased a new car for one of its sales agents for $184,000. If the useful life
The car is 4 years old and the annual depreciation is $39,100, find the salvage value of the car.
automobile

Statement and/or formula:

S=C−Dn

S=184000−39100 ( 4 )=184000−156400=27600

S=$27,600

Respuesta: $27,600
5. What is the replacement value of an industrial equipment that cost $314,700 and has a lifespan
What is the present value of 12 years and the expected average inflation rate is 3% per year?

Approach and/or formula:

VC=C ( 1+in)
VC=314700 (1+ 0.0312) =314700 ( 1.425760887 )=448686.9511
VC=$448,686.9511

$448,686.95

6. The finance department of a university purchased a video equipment to be used by the

Teachers in the area. Its cost was $95,800 and it is considered a salvage value of $5,000. If the useful life
this equipment is considered to have a lifespan of 5 years, calculate the annual depreciation using an inflation rate of

10% annual.

Approach and/or formula:

C ( 1+in) −S
D=

[ ( 1+I )n−1
i ]
95800 ( 1+0.10)5 −5000 95800(1.61051)−5000 149286.858
D= = = =24452.81126

[ ] [ ]
( 1+0.10 )5 −1 1.61051−1 6.1051
0.10 0.10

D=$24,452.81126

$24,452.81

Depreciation – Sum of digits method

7. A farmer bought a tractor for $640,000. It has an estimated lifespan of 6 years and a salvage value.
18% of the cost. Prepare the depreciation table.

Approach and/or formula:

B=C−S

B=640,000−640000 ( 0.18 )=640000−115200=524800

Approach and/or formula:

 n(n+ 1)
D f=
2

6(6+ 1) 6(7) 42
Df= = = =21
2 2 2

End of year Fraction Depreciation base Annual depreciation Accumulated depreciation Book value
0 $ 640,000.00
1 0.285714286 524,800.00 149,942.86 149,942.86 $ 490,057.14
2 0.238095238 524,800.00 124,952.38 274,895.24 $ 365,104.76
3 0.19047619 524,800.00 99,961.90 374,857.14 $ 265,142.86
4 0.142857143 524,800.00 74,971.43 449,828.57 $ 190,171.43
5 0.095238095 524,800.00 49,980.95 499,809.52 $ 140,190.48
6 0.047619048 524,800.00 24,990.48 524,800.00 $ 115,200.00

8. A law firm renovates the office furniture with an investment of $175,000. Assuming
a useful life of 5 years and a salvage value of zero, prepare the depreciation table.

Approach and/or formula:

n(n+ 1)
Df =
2

5(5+1) 5(6) 30
D f= = = =15
2 2 2

End of year Fraction Annual depreciation Accumulated depreciation Book value

0 $ 175,000.00
1 0.333333333 58,333.33 58,333.33 $ 116,666.67
2 0.266666667 46,666.67 105,000.00 $ 70,000.00
3 0.2 35,000.00 140,000.00 $ 35,000.00
4 0.133333333 23,333.33 163,333.33 $ 11,666.67
5 0.066666667 11,666.67 175,000.00 $ -

9. Calcule la depreciación anual de una laptop que cuesta $19,400, su valor de desecho es de $2,500ytene
an effective life of 4 years.

Approach and/or formula:

B=C−S

B=19400−2500=16900

Approach and/or formula:

 n(n+ 1)
Df=
2

4 (4 +1) 4 (5) 20
D f= = = =10
2 2 2

Approach and/or formula:

n− ( k +1 )
D K= (B)
Df

4− ( 1+1 )
Year1=D1= ( 16900 )=0.4 ( 16900 )=$6,760
10

4− ( 2+1 )
Year2=D2= ( 16900 ) =0.3 ( 16900 )=$5,070
10

4− ( 3+ 1 )
Year 3=D3= ( 16900 )=0.2 ( 16900 )=$3,380
10

4− ( 4 +1 )
Year4=D 4 = ( 16900 )=0.1 ( 16900 )=$1,690
10

Respuesta: $6,760, $5,070, $3,380, $1,690

10. An office building costs $5,000,000 and has an estimated useful life of 60 years, with a value of
savings of 20% of its initial cost. Determine the annual depreciation for the first 3 years and for
the last 3 years.

Approach and/or formula:

B=C−S
B=5000000−5000000 ( 0.20 )=5000000−1000000=4,000,000
Approach and/or formula:
n(n+ 1)
Df =
2
60(60+1) 60(61) 3660
D f= = = =1830
2 2 2
Approach and/or formula:
n− ( k +1 )
D K= (B)
Df

60− ( 1+1 ) 2
Year1=D1= ( 4000000 )= ( 4000000 )=$131,147.541
1830 61
 60− ( 2+1 ) 59
Year2=D2= ( 4000000 )= ( 4,000,000
)=$128,961.7486
1830 1830

60− ( 3+1 ) 29
Year 3=D3= ( 4000000 )= ( 4000000 ) =$126,775.9563
1830 915
60− ( 58+1 ) 1
Year 58=D58= ( 4000000 )= ( 4000000 ) =$6,557.38
1830 610
60− ( 59+1 ) 1
Year 59=D59= ( 4000000 )= ( 4000000 ) =$4,371.584699
1830 915
60− ( 60+1 ) 1
Year 60=D60= ( 4000000 ) = ( 4000000 ) =$2,185.79235
1830 1830

Respuesta: $131,147.54, $128,961.75, $126,775.96, $6,557.38, $4,371.58, $2,185.79

11. A hospital acquires an X-ray machine worth $1,465,000. The useful life of this equipment is 18 years.
years and its salvage value is calculated at $300,000. What is the accumulated depreciation and the value in
books after 10 years?

Approach and/or formula:

B=C−S

B=1465000−300000=1,165,000

n(n+ 1)
Df =
2
18(18+1) 18(19) 342
Df = = = =171
2 2 2

kB
YES= ( 2n−k +1 )
2Df
10(1165000) 11650000(
YES= ( 2(18)−10+1=) 36−9 )=34064.3274853 ( 27 ) =919736.8421
2(171) 342
YES=$919,736.8421

Approach and/or formula:

VL=C−¿ YES

Vl=1465000−919736.8421=545263.1579

Vl=$545,263.1579
 Respuesta: $919,736.84, $545,263.16

12. The university cafeteria purchased furniture and equipment for $970,000. A useful life of 5 years is estimated.

years and a salvage value of $50,000. Without preparing the depreciation table, determine the depreciation.
accumulated and the book value after 3 years.

Approach and/or formula:

B=C−S
B=970000−50000=920,000
n(n+ 1)
Df=
2
5(5+1) 5(6) 30
D f= = = =15
2 2 2

kB
YES= ( 2n−k +1 )
2Df
3(920000) 2760000(
YES= ( 2 ( 5 ) −3+1 )= 10−2 )=92000 ( 8 )=736000
2(15) 30
YES=$736,000

Approach and/or formula:

VL=C−¿ YES

Inthe=970000−736000=234000

Vl=$234,000

Respuesta: $736,000, $234,000

Depreciation – Fixed Percentage Method

13. El costo de una máquina es de $100,000 y se estma que su vida útl será de 5 años. Elabore la tabla de
depreciation considering a depreciation rate of 20% per year.

End of
year Annual depreciation Accumulated Depreciation Book value
0 $ 100,000.00
1 $ 20,000.00 $ 20,000.00 $ 80,000.00
 2 $ 16,000.00 $ 36,000.00 $ 64,000.00
3 $ 12,800.00 $ 48,800.00 $ 51,200.00
4 $ 10,240.00 $ 59,040.00 $ 40,960.00
5 $ 8,192.00 $ 67,232.00 $ 32,768.00

14. Solve the previous exercise if the depreciation rate is 30% per year.

End of
year Annual depreciation Accumulated depreciation Book value
0 $ 100,000.00
1 $ 30,000.00 $ 30,000.00 $ 70,000.00
2 $ 21,000.00 $ 51,000.00 $ 49,000.00
3 $ 14,700.00 $ 65,700.00 $ 34,300.00
4 $ 10,290.00 $ 75,990.00 $ 24,010.00
5 $ 7,203.00 $ 83,193.00 $ 16,807.00

15. A car that will be used as a taxi cost $180,000. The vehicle has a useful life of
4 years, after which it can be sold for $25,000. Calculate:
a) The total depreciation.

Statement and/or formula:

DT=C−S
DT=180000−25000=155000
DT=$155,000

b) The depreciation rate that should be applied to the book value.

Approach and/or formula:

d=1− nS
√ C

√
d=1− 425000=1−0.6104735836=0.3895264164 100=38.95264164
180000
( )

d=38.95264164%

c) Prepare the depreciation table.

End of the year Annual depreciation Accumulated depreciation Book value

0 $ 180,000.00
1 $ 70,114.75 $ 70,114.75 $ 109,885.25
2 $ 42,803.21 $ 112,917.96 $ 67,082.04
3 $ 26,130.23 $ 139,048.19 $ 40,951.81
 4 $ 15,951.81 $ 155,000.00 $ 25,000.00

Respuesta: a) $155,000, b) 38.9526%, c) Elaborar tabla

16. A machine was purchased for $138,000 and it is calculated to have a salvage value of $20,700. If the
A machine depreciates by 21.11% annually, what is its useful life?

Approach and/or formula:

n=
log
( CS )
log ( 1−d )

n=
log
( 138000
20700
) = −0.8239087409 =8.000819487
log ( 1−0.2111 ) −0.1029780439

n=8 years

Response: 8 years

17. An automotive workshop bought a hydraulic jack for $350,000. It is estimated that the salvage value will be
from $21,000 at the end of a 15-year life. How long will it take for the book value to be half of its price?
original?

Approach and/or formula:

d=1− nS
√ C

√
d=1−1521000=1−0.8289787857=0.1710212143 100=17.10212143
350,000
( )

d=17.10212143% annual

Data

V = 350000 / 2 = 175000

C= 350000

d = 17.10212143% annual

Proposition and/or formula:

 n=
log
( VC )
log ( 1−d )

n=
log
( 175000
350000 ) −0.3010299957
= =3.695588294
log ( 1−0.1710212143 ) −0.08145658329

n=3.695588294 years

Answer: 3.7 years

Depreciation - Delfondo method of amortization

18. An industrial team has a cost of $435,000 and a salvage value of $50,000, with a useful life of
of 5 years. Prepare the depreciation table, taking into account that the annual deposits yield 12%
annual interest.

Approach and/or formula:

DT=C−S
DT=435000−50000=385000
DT=$385,000
Approach and/or formula:

DT ( i )
D= (
1+in) −1

385000 ( 0.12 ) 46200

D= ( = =60602.7468
1+0.12 ) −1 0.7623416832
5

D=$60,602.746

End of year Deposit Earned interest Annual depreciation Accumulated depreciation Book value
0 $ 435,000.00
1 $ 60,602.75 $ - $ 60,602.75 $ 60,602.75 $ 374,397.25
2 $ 60,602.75 $ 7,272.33 $ 67,875.08 $ 128,477.83 $ 306,522.17
3 $ 60,602.75 $ 15,417.34 $ 76,020.09 $ 204,497.91 $ 230,502.09
4 $ 60,602.75 $ 24,539.75 $ 85,142.50 $ 289,640.41 $ 145,359.59
5 $ 60,602.75 $ 34,756.85 $ 95,359.60 $ 385,000.01 $ 49,999.99

19. The construction of a winery has cost $634,000, has a useful life of 20 years, and it is estimated that it does not

it would have a scrap value. Considering an annual interest rate of 9%, calculate:
a) annual depreciation
 Approach and/or formula:
DT ( i )
D= (
1+i )n−1
634000 ( 0.09 ) 57060
D= ( = =12392.46516
20
1+0.09 ) −1 4.604410768

D=$12,392.46516

b) the accumulated depreciation and the book value after 15 years.

Accumulated depreciation

Approach and/or formula:

YES=D
[
( 1+In) −1
i ]
YES=12392.46516
[ ( 1+0.09)15−1
0.09 ]
=12392.46516 ( 29.36091622 )=363854.1313

YES=$363,854.1313
Value in Books

Approach and/or formula:

VL=C−¿ YES

VL=634000−363854.1313=270145.8687

VL=¿ $270,145.87

Respuesta: a) $12,392.47, b) $363,854.27, $270,145.73

20. An automotive workshop purchases an air compressor worth $98,640. The useful life of this device
It is 12 years old, and its salvage value is $5,000.
a) Calculate the annual deposit to the depreciation fund if the interest rate is 9.2%.

Approach and/or formula:

DT=C−S

DT=98640−5000=93640

DT=$93,640
 Approach and/or formula:

DT ( i )
D= (
1+in) −1

93640 ( 0.092 ) 8614.88

D= ( = =4594.054228
12
1+0.092 ) −1 1.875223838

D=$4,594.054228

b) If the workshop owner wishes to sell the compressor after 3 years at a price equal to its
book value, how much should be asked?

Statement and/or formula:

YES=D
[ ( 1+in) −1
i ]
YES=4594.05
[
(1+0.0923) −1
0.092 ]
=4594.05 ( 3.284464 )=15088.9918392

YES=$15,089
Approach and/or formula:

DL=C−¿ YES

VL=98640−¿ 15089=83551

VL=$83,551

Respuesta: a) $4,594.05, b) $83,551

21. A company acquires a machine for $1,260,000, which has a salvage value of $150,000. If
The annual contribution to the depreciation fund is $69,647.39 and the interest rate is 10%, what is the
machine useful life?

Approach and/or formula:

DT=C−S

DT=1260000−150000=1110000

DT=$1,110,000
Approach and/or formula:

n=
log
( DTD( i ) + 1)
log ( 1+i )
 n=
log
( 1110000 ( 0.10 )
69647.39 )+1
=
0.4139268451
=9.999999844
log (1+0.10 ) 0.04139268516

n=9.99 years

Answer: 10 years