ES 91 ENGINEERING ECONOMY Chapter 3 DEPRECIATION

Symbols
L = useful life of the property in years
d = the annual cost of depreciation
dn = the depreciation charge during the nth year
k = rate of depreciation
C0 = the original cost Cn = the book value at the end of n years
CL = the scrap value Dn = the depreciation up to age n years
T = total units of output up to end of life Qn = total number of units of output during the nth
year

Depreciation up to age n Book value at the end of n years, Cn

DEPRECIATION METHOD Annual cost of depreciation, d
years, Dn Scrap value, CL
𝑪𝟎 − 𝑪𝑳 𝒏 (𝑪 𝟎 − 𝑪 𝑳 )
The Straight Line Method 𝒅= 𝑫𝒏 = 𝑪 𝒏 = 𝑪 𝟎 − 𝑫𝒏
𝑳 𝑳
𝑪𝟎 − 𝑪𝑳
𝒅= 𝑫𝒏 = 𝒅(𝑭/𝑨, 𝒊%, 𝒏)
𝑭/𝑨, 𝒊%, 𝑳
The Sinking Fund Formula (𝟏 + 𝒊)𝑳 − 𝟏 𝑪 𝒏 = 𝑪 𝟎 − 𝑫𝒏
𝑭/𝑨, 𝒊%, 𝑳 = [ ] (𝟏 + 𝒊)𝒏 − 𝟏
𝒊 𝑭/𝑨, 𝒊%, 𝒏 = [ ]
𝒊
𝒅𝒏 = 𝑫𝒏 − 𝑫𝒏−𝟏

𝒅𝒏 = 𝑪𝟎 (𝟏 − 𝒌)𝒏−𝟏 𝒌 𝒏
𝑪𝑳 𝑳
Declining Balance Method 𝒏 𝑪𝒏 𝑳 𝑪𝑳 𝑫𝒏 = 𝑪𝟎 − 𝑪𝒏 𝑪𝒏 = 𝑪𝟎 (𝟏 − 𝒌)𝒏 = 𝑪𝟎 [ ]
𝒌= 𝟏− √ =𝟏−√ 𝑪𝟎
𝑪𝟎 𝑪𝟎 𝑪𝑳 = 𝑪𝟎 (𝟏 − 𝒌) 𝑳

Double Declining Balance 𝟐 𝒏−𝟏 𝟐 𝟐 𝒏 𝟐 𝑳

𝒅𝒏 = 𝑪𝟎 (𝟏 − ) 𝑫𝒏 = 𝑪𝟎 − 𝑪𝒏 𝑪𝒏 = 𝑪𝟎 (𝟏 − ) 𝑪𝑳 = 𝑪𝟎 (𝟏 − )
Method 𝑳 𝑳 𝑳 𝑳

𝒅𝒏 = (𝒅𝒆𝒑𝒓𝒆𝒄𝒊𝒂𝒕𝒊𝒐𝒏 𝒇𝒂𝒄𝒕𝒐𝒓)(𝒕𝒐𝒕𝒂𝒍 𝒅𝒆𝒑𝒓𝒆𝒄𝒊𝒂𝒕𝒊𝒐𝒏) 𝒏(𝟐𝑳 − 𝒏 + 𝟏)

𝒓𝒆𝒗𝒆𝒓𝒔𝒆 𝒅𝒊𝒈𝒊𝒕 𝑫𝒏 = (𝑪 𝟎 − 𝑪 𝑳 )
Sum-of-the-Years’Digits 𝒅𝒏 = (𝑪 − 𝑪𝑳 ) 𝑳(𝑳 + 𝟏) 𝑪 𝒏 = 𝑪 𝟎 − 𝑫𝒏
𝒔𝒖𝒎 𝒐𝒇 𝒅𝒊𝒈𝒊𝒕𝒔 𝟎
𝑪𝟎 − 𝑪𝑳 𝒏
𝒅𝒏 = ( ) 𝑸𝒏
𝑻 𝑫𝒏 = ∑ 𝒅𝒙
The Service Output Method Depreciation per unit of output 𝑪 𝒏 = 𝑪 𝟎 − 𝑫𝒏
𝑪𝟎 − 𝑪𝑳 𝒙=𝟏
=
𝑻