Tishk International University

Faculty of Engineering
Petroleum and Mining Engineering Department

Course name : Petroleum Engineering Economics - PTR 328

TOPIC : Defention Of DEPRECIATION – Week 10

Grade 3 - Spring Semester 2020-2021

Instructor: AbdulNasser M. Fatah

Topic Title :

Crude Oil Exporting and

Economics
1- Definition Crude Oil Exporting Countries

2- Impact of Increasing and Decreasing C.O. Exporting

3- Crude Oil Exporting Organization

Introduction
What is Depreciation?
 Depreciation is calculated by subtracted the scrap
value from the original cost of an asset and the balance is
divided by the number of years estimated as the life of
the asset.
Depreciation represents how much of an asset's
value has been used up.
For example, companies can take a tax subtraction for
the cost of the asset, meaning it reduces taxable income.
Importance of understanding Depreciation

- Any equipment which is purchased today will not work

for ever. This may be due to wear of the equipment or
obsolescence (been old) of technology.

- It is to be replaced at the proper time for continuance of

- any industry.

- The replacement of the equipment at the end of its life

involves money. This must be internally generated from the
earnings of the equipment.
Importance of understanding Depreciation

- The recovery of money from the earnings of an equipment

for its replacement purpose is called depreciation fund since
we make an assumption that the value of the equipment
decreases with the passage of time.

- “Depreciation” means decrease in value of any physical

asset with the passage of time.
Salvage Value Cases
Case no 1 :
What is the salvage value of maintenance tool in one of
company’s workshop if it's four years old. Tool bought it for
$49,500 ( as present worth P ) and it depreciates 23% annually?
Solution :
To solve the problem we have to obtian a S.V. formula :

where:
S = salvage value
P = original price (present worth)
i = nominal depreciation rate
n = no. of years of using
Salvage Value Cases
Case no 1 :
What is the salvage value of maintenance tool in one of
company’s workshop if it's four years old. Tool bought it for
$49,500 ( as present worth P ) and it depreciates 23% annually?
Solution :
S=?
P = 49,500.00 $
i = 23 %
n=4
the result is

S = salvage value = $17,400.76

Salvage Value Cases
Case no 1 :
What Engineering machinery costing $100,000 has a useful life of
7 years. The amount of depreciation is 15% per year. Calculate the
Salvage value of the machinery after 7 years.?
Solution :
S=?
P = 100,000.00 $
i = 15 %
n=7
the result is

S = salvage value = $ 32,057.71

SUMMARY

❖ Depreciation is thus the decrease in the value of assets and the

method used to reallocate, or "write down" the cost of a tangible

asset (such as equipment) over its useful life span.
❖ Salvage value actually tries to capture the remaining scrap of a

particular machine, after its useful life of usage. Most of the time
Companies buys new machinery after completion of the effective
life of usage and sells the old machine on the basis of its scrap
value. Salvage value Using a formula :