- 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