Equipment Depreciation Methods

Dr. Mohammad S. El-Mashaleh

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 1

Depreciation methods

• Recall from previous lectures that we

mentioned that construction equipment
are depreciated over their useful life of
5-8 yrs

• However, note that different companies

utilize different methods of depreciation

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 2

1
 Depreciation methods

• 3 methods are currently in use:

(1)Straight Line (SL)
(2)Sum Of the Years Digits (SOYD)
(3)Declining Balance (DB)

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 3

(1) Straight line method (SL)

• The depreciated amount is spread

uniformly over the expected life of the
equipment

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 4

2
 Example 1

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 5

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 6

3
 (2) Sum of the years digits method
(SOYD)
• This method produces a non uniform
depreciation

• The depreciation is the highest in the

first year of life and gradually decreases
thereafter

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 7

• For example, for 5 years life:

• SOYD = 1+2+3+4+5 = 15

• So, we depreciate the following

amounts every year:

• 1st yr = 5/15 = 33.3%

• 2nd yr = 4/15 = 26.7%

Construction Project Management
Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 8

4
 • 3rd yr = 3/15 = 20%

• 4th yr = 2/15 = 13.3%

• 5th yr = 1/15 = 6.7%

• Note that the above % are from (P-S)

value

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 9

Example 2

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 10

5
 (3) Decline balance method (DB)

1
f = ×F
N

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 11

• As we know, N = number of years

• For N = 5, try F = 1,……….., 5 Double
declining
balance
1 1
f = × (1) = 0.2 f = × (2) = 0.4
5 5

1 1
f = × (3) = 0.6 f = × (4) = 0.8
5 5
1
f = × (5) = 1
5
Construction Project Management
Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 12

6
 Example 3

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 13

Example 4

Construction Project Management

Dept. of Civil Eng.
Dr. Mohammad El-Mashaleh
Hashemite University 14