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    ES6 Lec07b Depreciation-Sinking-Fund-Method

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    Iroha Isshiki
    The document discusses different methods for determining depreciation, including time-independent methods like straight line and declining balance, and time-dependent methods like sinking fund. It provides examples of how to calculate depreciation using the sinking fund method, which depreciates an asset while generating funds to replace it at the end of its useful life. Formulas are given for calculating the sinking fund amount and annual depreciation amounts using variables like future replacement cost, useful life, and interest rate. Sample problems demonstrate calculating book values, depreciation costs, and annual investment amounts needed using the sinking fund method.

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    ES6 Lec07b Depreciation-Sinking-Fund-Method

    Uploaded by

    Iroha Isshiki
    167 views7 pages
    The document discusses different methods for determining depreciation, including time-independent methods like straight line and declining balance, and time-dependent methods like sinking fund. It provides examples of how to calculate depreciation using the sinking fund method, which depreciates an asset while generating funds to replace it at the end of its useful life. Formulas are given for calculating the sinking fund amount and annual depreciation amounts using variables like future replacement cost, useful life, and interest rate. Sample problems demonstrate calculating book values, depreciation costs, and annual investment amounts needed using the sinking fund method.

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    _ES6_Lec07b_Depreciation-Sinking-Fund-Method

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    The document discusses different methods for determining depreciation, including time-independent methods like straight line and declining balance, and time-dependent methods like sinking fund. It provides examples of how to calculate depreciation using the sinking fund method, which depreciates an asset while generating funds to replace it at the end of its useful life. Formulas are given for calculating the sinking fund amount and annual depreciation amounts using variables like future replacement cost, useful life, and interest rate. Sample problems demonstrate calculating book values, depreciation costs, and annual investment amounts needed using the sinking fund method.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    167 views7 pages

    ES6 Lec07b Depreciation-Sinking-Fund-Method

    Uploaded by

    Iroha Isshiki
    The document discusses different methods for determining depreciation, including time-independent methods like straight line and declining balance, and time-dependent methods like sinking fund. It provides examples of how to calculate depreciation using the sinking fund method, which depreciates an asset while generating funds to replace it at the end of its useful life. Formulas are given for calculating the sinking fund amount and annual depreciation amounts using variables like future replacement cost, useful life, and interest rate. Sample problems demonstrate calculating book values, depreciation costs, and annual investment amounts needed using the sinking fund method.

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    You are on page 1of 7

    DEPRECIATION

    ES 6 – Engineering Economics
    METHODS USED TO
    Depreciation

    DETERMINE DEPRECIATION
    Time Time-
    Independent Dependent
    Method Method

    Uniform Non-Uniform
    Hour Output
    Methods Methods
    Method

    Service Output Straight Line Declining


    Method Method Balance Method

    Double
    Sinking Fund
    Declining
    Method
    Balance Method

    METHODS USED TO Sum-of-Years’


    Digit Method
    DETERMINE DEPRECIATION
    SINKING FUND METHOD

    Sinking fund method is a technique for depreciating an asset while generating


    enough money to replace it at the end of its useful life.
    As depreciation charges are incurred to reflect the asset’s falling value, a
    matching amount of cash is invested.

    (𝟏 + 𝐢)𝐧 −𝟏 (𝟏 + 𝐢)𝒏 −𝟏
    𝐅 = (𝐀) 𝐃𝐧 = 𝒅
    𝒊 𝒊

    (𝟏 + 𝐢)𝒓 −𝟏
    𝐃𝐫 = 𝒅
    𝒊
    SAMPLE PROBLEM
    ON SINKING FUND METHOD
    Marquez group of companies decided to acquire a new
    delivery truck costing Php 1,200,000. The said truck is
    projected to last for 12 years and at that point would cost Php
    140,000. Find the book value at its 7th year if it is depreciated
    using sinking fund method at i = 6.5%
    SAMPLE PROBLEM
    ON SINKING FUND METHOD
    A broadcasting company purchased an equipment for
    Php53,000 and paid Php1,500 for freight and delivery charges
    to the job site. The equipment has a normal life of 10 years
    with a trade-in value of Php5,000 against the purchase of a
    new equipment at the end of the life. Determine the annual
    depreciation cost using:
    (a) straight line method
    (b) sinking fund method assuming interest is
    6% compounded annually
    SAMPLE PROBLEM
    ON SINKING FUND METHOD
    A machine, initially costing Php 155,000, is set to depreciate
    Php 20,000 every year using sinking fund method. How much
    must be invested every year to replace the asset with a better
    but more expensive machine costing Php 250,000 after 5
    years at an annual rate of 5%?
    INDIVIDUAL ACTIVITY # 2
    ON SINKING FUND METHOD

    1. A machine costs Php 80,000 and has an estimated salvage value of Php
    20,000 at the end of 20 years useful life. Compute the book value at the
    of 2nd year using sinking fund method of depreciation based on 8%
    interest rate.
    2. A plant erected to manufacture socks has a first cost of P 10,000,000
    with an estimated salvage value of P 100,000 at the end of 25 years. Find
    its appraised value to the nearest P 100 by the sinking fund method,
    assuming an interest rate of 6% at the end of 10 years.
    3. A certain office equipment has a first cost of Php 20,000 and has a
    salvage value of Php 1000 at the end of 10 years. Determine the
    depreciation at the end of 6th year using Sinking Fund Method at 3%
    interest.

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