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Presentation On

Outgoings and Depreciation


Prepared By, Subject:
Name Enrollment No. Professional Practice &
Patel Krunal 150230106039 Valuation
Patel Pinal 150230106040
(2170610)
Patel Prinkesh 150230106042
Submitted To,
Patel Rachit 150230106043
Patel Sahil 150230106044
Prof. V. G. Yadav

Dr. S & S S Ghandhy Government


Engineering College, Surat
Affiliated To,
Gujarat Technological University,
Ahmedabad
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Outgoings and Depreciation
Topics:-
• Outgoings
• Types of outgoings
• Depreciation
• Types of depreciation
• Method of calculating depreciation

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Outgoings:-
• Outgoings is used to indicate the expenses
which are to be incurred in connection with
the property so as to maintain the revenue
from it.

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Types of outgoings:-
• The usual types of outgoings are as below:-
1. Taxes
2. Repairs and maintenance
3. Management and collection charges
4. Insurance
5. Loss of rent
6. Sinking fund
7. Ground rent
8. Miscellaneous

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Types of outgoings:-
1. Taxes:-
These include Municipal taxes, such as
• Water supply tax
• Drainage tax
• Property tax
• Street light tax
• Education tax, etc

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Types of outgoings:-
2. Repairs and maintenance:-
• It includes various types of repair such as
annual repair, special repairs, immediate
repair, etc.
• Amount to be sent on repairs is 10 % of gross
rent.

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Types of outgoings:-
3. Management and collection charges:-
• This includes investigation of petty
complaints and supervising petty repairs.
• This amount does not include salaries of
liftman, sweeper for staircase amd common
passage, pump attendant, electric charges for
pump and lift, etc
• Usually charges vary from 4 to 5 %.

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Types of outgoings:-
4. Insurance:-
• The amount of actual insurance premium is
considered as an outgoing expense.

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Types of outgoings:-
5. Loss of rent:-
• Part of a property may remain vacant for
some period and will not fetch any rent for
that period.
• Therefore, the loss of rent is considered as
outgoing expenses and deducted from the
calculated gross rent.

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Types of outgoings:-
6. Sinking fund:-
• Sinking fund is an amount which has to beset
a side at fixed intervals of time out of the
gross income so that at the end of the usuful
life of the property or building, the fund
should accumulate to the initial cost of the
property.

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Types of outgoings:-
7. Ground rent:-
• The rent which is paid by the leaseholder for
the use of land usually for the purpose and
the privilege of building on another man’s
land is known as ground rent.

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Types of outgoings:-
8. Miscellaneous:-
• It includes,
• Lighting charges for common amenities
• Service charge for lift and pump
• Salaries for lift man
• Sweepers, etc

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Depreciation:-
• It is the gradual loss in the value of the
property due to its use, life, wear, tear, decay.
• This is an assessment of the physical wear and
tear of the building or property.
• It is naturally dependent on its original
condition, quality of maintenance and mode
of use.

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Depreciation:-
• The general annual decrease in the value of a
property is known as “annual depreciation”.
• Usually, the percentage rate of depreciation is
less at the beginning and gradually increase
during later years.
• Present value of property
= Initial cost – Total amount of depreciation

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Types of Depreciation:-
a) Physical depreciation
1. Wear and tear from operation
2. Decrepitude i.e. action of time and other
elements
b) Functional depreciation
1. Inadequacy or suppression
2. Obsolescence

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Types of Depreciation:-
Obsolescence:-
• It is defined as the loss in the property due to
change in fashions, in designs, in structures,
etc.
• The obsolescence may be due to the reasons
such as progress in arts, changes in fashions,
changes in planning ideas, new inventions,
improvements in design technique, etc.

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Methods of calculating Depreciation:-
• The various methods of calculating
dereciation are as follows:-
1. Straight line method
2. Constant percentage method
3. Sinking fund method
4. Quantity survey method

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Methods of calculating Depreciation:-
1. Straight line method:-
• In this method, it is assumed that the
property loses its value by the same amount
every year.
• A fixed amount of the original cost is
deducted every year, so that at the end of
the utility period only the scrap value is left.

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Methods of calculating Depreciation:-
• Annual depreciation = Annual decrease in the
value of a property
D=

• Where, D = Annual depreciation


C = Original cost
S = Scrap value
n = life in years

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Methods of calculating Depreciation:-
• Depreciation of the property after m years
=

=
• So, book value after m years,
=C–

=C-

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Methods of calculating Depreciation:-
2. Constant percentage method:-
• In this method, it is assumed that the
property will lose its value by a constant
percentage of its value at the beginning of
every year.

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Methods of calculating Depreciation:-
• Percentage rate of annual depreciation,
P = 1 – [S/C](1/n)
• Where.
p = Percentage rate of annual depreciation
S = Scrap value
C = Original cost
n = life in years

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Methods of calculating Depreciation:-
• If age of property is m years, value of property
after m years after depreciation,
= C [S/C](m/n)

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Methods of calculating Depreciation:-
3. Sinking fund method:-
• In this method, the depreciation of the
property is assumed to be equal to the
annual sinking fund plus the interest on the
sinking fund fir that year.
• Depreciation = Annual sinking fund + Interest
on the sinking for that year

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Methods of calculating Depreciation:-
• If I is the rate of interest, annual sinking fund
installment (p) to accumulate 1 Rs. In n years.
p = i / [(1 + i)n - 1]

• If I is the rate of interest, and 1 Rs. Is


deposited every year, total sinking fund
accumulated at the end of n years is,
q = [(1 + i)n - 1] / i

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Methods of calculating Depreciation:-
• Rate of depreciation in n years = (p * q) %

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Questions:-
• Difference between Depreciation and
Obsolesnence

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Reference:-
• “Professional Practice and Valuation” by Dr. R.
P. Rethaliya, Atul Prakashan, 2nd Edition,2017

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