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Depreciation: Engineering Economy
Depreciation: Engineering Economy
Engineering Economy
Definition
• Straight-Line Formula
• Sinking Fund Formula
• Matheson Formula
• Sum of the Years Digits Method (SYD)
Straight Line Formula
• Then,
Straight Line Method
• Solution:
EOY, K Dk BV k
0 - 4,000
1 400 3,600
2 400 3,200
3 400 2,800
4 400 2,400
5 400 2,000
6 400 1,600
7 400 1,200
8 400 800
9 400 400
10 400 0
Matheson Formula
• dm = kCm-1
• Cm = Co (1 – k)m
• Cn = Co(1 –k)n
Matheson Formula
Solution:
• R = 2/10 = 0.2
• D6 = 4,000 (1- 0.2)^5 (0.2) = $262.14
• D6* = 4,000 [1 – (1- 0.2)^6] = $2,951.42
• BV6 = 4,000 (1 – 0.2)^6 = $1,048.58
Matheson Formula
EOY Dk BVk
0 - 4,000.00
1 800.00 3,200.00
2 640.00 2,560.00
3 512.00 2,048.00
4 409.60 1,638.40
5 327.68 1,310.72
6 262.14 1,048.58
7 209.72 838.86
8 167.77 671.09
9 134.22 536.87
10 107.37 429.50
The Sum of the Years-Digits (SYD)
Method
Dm = (Co – Cn)[2(n-m+1)/n(n+1)]
Note that the annual depreciation charge gradually decreases as
the property gets older. The depreciation for the first year is n
times the depreciation charge for the last year n.
The Sum of the Years-Digits (SYD)
Method
• Example:
• A contractor imported a bulldozer for his job,
paying P250,000 to the manufacturer. Freight
and insurance charges amounted to P18,000;
customs, broker’s fees and arrastre services,
P8,500; taxes, permits, and other expenses,
P25,000. If the contractor estimates the life of
the bulldozer to be 10 years with a salvage value
of P20,000, determine the formula using the SYD
method.
The Sum of the Years-Digits (SYD)
Method
• Solution:
E of Years: 1+2+3… 10 = (10/2)(1+10) = 55
Co – Cn = 281,500
D6 = [(10+9+8+7+6+5)/55]*(281,500) = 230,318.18
C6 = Co – D6 = 301,500 – 230,318.18 = P71,181.82
Sinking Fund Formula
• Solution:
• Co = 250,000 + 120,000 = 370,000
• Cn = 50,000
• n = 10
Depreciation Problem: Straight Line