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Modeling Modeling DepreciationDepreciationStage 6 - Year 11Stage 6 - Year 11

General MathematicsHSC

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Modeling Depreciation (1/4)

• Assets include things such as automobiles, Assets include things such as automobiles, computers, furniture, house and equipment.computers, furniture, house and equipment.

• The only asset that rarely declines in value is land. The only asset that rarely declines in value is land.

• The definition of The definition of depreciationdepreciation is “the decline is “the decline in the useful life of a fixed asset over time”.in the useful life of a fixed asset over time”.

• These assets have a set amount of useful life. These assets have a set amount of useful life. This means that an asset is not expected to last This means that an asset is not expected to last forever, and so its value depreciates over time.forever, and so its value depreciates over time.

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Modeling Depreciation (2/4)

The 2 main types of depreciation.

a) Straight line depreciation.

$

$

It loses a constant amount each period.

b) Declining Value depreciation.

It loses a varying amount each period.

An exponential curve.

Decay

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V

T

Linear Depreciation (3/4)

Linear Depreciation Formula

V = V0 – DT

Find the equation that represents the depreciation shown in the table below

left.Time in Years

Value $

New (0)

$10

000

1 $9 500

2 $9 000

3 $8 500

4 $8 000

5 $7 500

V0 = Initial Value

D = Difference

= $10 000

= $10 000- $9 500= $500

V = V0 – DT

V = 10 000 – 500T

EXCEL

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V

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Declining Value Depreciation (4/4)

Declining Value Depreciation

FormulaS = V0(1- r)n

Find the equation that represents the depreciation shown in the table below

left.Time in Years

SalvageValue

$

New (0)

$10

000

1 $8 000

2 $6 400

3 $5 120

4 $4 096

5 $3 287V0 = Initial Value

r = Depreciation Rate =

= $10 00010 000- 8 000

S = V0(1- r)n

10 000= 0.2

S = 10 000(1- 0.2 )n

S = 10 000 x 0.8n

EXCEL