Straight Line Depreciation

In this method the cost is spread uniformly over a certain number of years N called the life. The definition of the cost for this purpose is the initial cost P minus the estimated resale value S at the end of the proj ect.

Example 8.2

What is the yearly depreciation and the book value for a truck with an initial cost of $150,000, an assumed life of five years, and an expected resale value of $50,000?

Year

Depreciation

Book Value

1

20,000

130,000

2

20,000

110,000

3

20,000

90,000

4

20,000

70,000

5

20,000

50,000

The resale price of the truck in the calculation was estimated; we do not know what the actual sale price would be. If the truck is sold at the end of year 5 for $70,000, then

Capital Gain =70.000-50,000 = 20;DOO If it is sold for $20,000, then

Capital gain or loss is treated as ordinary benefit or cost. Some years ago only part of the gain was treated as ordinary gain. This law may again come into effect in the future.

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Project Management Made Easy

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