- A constant depreciation charge is calculated every year on the basis of total depreciation charges and useful life of equipment / property.
Let
P
= Initial cost of equipment / plant
S
= Salvage / Scrap value of equipment / plant
n = Life of equipment
Annual
depreciation charge = P – S / n
- Figure shows the graphical representation of annual depreciation charges considering straight line method.
Advantages
- Simple method
- Easy to calculated annual depreciation charges
Disadvantages
- This method does not consider interest on the annual depreciation charges.
- As the equipment maintenance charges increases as it becomes older, constant depreciation charge per year is not correct.
Example
The
cost of an electrical equipment is Rs.75,000 and its useful life is 10 years.
The salvage value of equipment is Rs.5,000. Calculate annual depreciation
charges using straight line method. Calculate the cost of equipment after 5
years.
Solution
P
= Rs 75,000
S
= Rs. 5,000
n
= 10 years
Annual
Depreciation charges = ( P – S ) / n
=
( Rs. 75,000 – Rs. 5,000 ) / 10
=
Rs. 70,000 / 10
= Rs. 7000
The
cost of equipment after 5 years
= P – ( Annual Depreciation × 5 )
= Rs 75,000 – ( Rs. 7000 × 5 )
= Rs 40,000
You
may also like :
Standard
kVA rating of three phase transformer
Compare
three phase induction motor and transformer
Construction
and working of ZIG – ZAG transformer
Compare
: Distribution transformer & Power transformer
No comments:
Post a Comment