FC 50000

S 10000
N 5
Depre each year,for 5 years $8,000.00
$ 8,000.00
Freeport-McMoRan Copper and Gold has purchased a new ore grading unit for $80,000. The
unit has an anticipated life of 10 years and a salvage value of $10,000. Use the DB and DDB
methods to compare the schedule of depreciation and book values for each year. Solve by hand
and by spreadsheet.

FIRST COST 80000 The book value is reduced eac

SV 10000 • The most used rate is twice t
n 10 It is not an approved tax depre
Depreciation rate 0.187748 pangkat = 1/n 1-(SV/FC)^1/n book depreciation purposes.

Declining balance(DB),$ DDB$

Year,t D(t) DB book value D(t) DDB book value
0 80000 80000
1 $15,019.81 $64,980.19 $16,000.00 $64,000.00
2 $12,199.88 $52,780.32 $12,800.00 $51,200.00
3 $9,909.38 $42,870.94 $10,240.00 $40,960.00
4 $8,048.92 $34,822.02 $8,192.00 $32,768.00
5 $6,537.75 $28,284.27 $6,553.60 $26,214.40
6 $5,310.30 $22,973.97 $5,242.88 $20,971.52
7 $4,313.31 $18,660.66 $4,194.30 $16,777.22
8 $3,503.49 $15,157.17 $3,355.44 $13,421.77
9 $2,845.72 $12,311.44 $2,684.35 $10,737.42
10 $2,311.44 $10,000.00 $737.42 $10,000.00
The book value is reduced each year by a fi xed percentage.
• The most used rate is twice the SL rate, which is called double declining balance (DDB).
It is not an approved tax depreciation method in the United States. It is frequently used for
book depreciation purposes.
A cooling-water pumping station at the LCRA
plant costs $600,000 to construct, and it is projected FC 600000
to have a 25-year life with an estimated N 30
salvage value of 15% of the construction cost. SV 0
However, the station will be book-depreciated to find SLN
zero over a recovery period of 30 years. Calculate DDB
the annual depreciation charge for years 4, 10,
and 25, using ( a ) straight line depreciation and $20,000.00
( b ) DDB depreciation. ( c ) What is the implied DR 2/N 0.066666667
salvage value for DDB? ( d ) Use a spreadsheet to Year Dt BV
build the depreciation and book value schedules 0 600000
for both methods to verify your answers. 1 $40,000.00 $560,000.00
2 $37,333.33 $522,666.67
3 $34,844.44 $487,822.22
4 $32,521.48 $455,300.74
5 $30,353.38 $424,947.36
6 $28,329.82 $396,617.53
7 $26,441.17 $370,176.37
8 $24,678.42 $345,497.94
9 $23,033.20 $322,464.74
10 $21,497.65 $300,967.10
11 $20,064.47 $280,902.62
12 $18,726.84 $262,175.78
13 $17,478.39 $244,697.40
14 $16,313.16 $228,384.24
15 $15,225.62 $213,158.62
16 $14,210.57 $198,948.05
17 $13,263.20 $185,684.84
18 $12,378.99 $173,305.85
19 $11,553.72 $161,752.13
20 $10,783.48 $150,968.65
21 $10,064.58 $140,904.08
22 $9,393.61 $131,510.47
23 $8,767.36 $122,743.11
24 $8,182.87 $114,560.23
25 $7,637.35 $106,922.88
26 $7,128.19 $99,794.69
27 $6,652.98 $93,141.71
28 $6,209.45 $86,932.27
29 $5,795.48 $81,136.78
30 $5,409.12 $75,727.66
$40,000.00
$37,333.33
$34,844.44
$32,521.48
$30,353.38
$28,329.82
$26,441.17
$24,678.42
$23,033.20
$21,497.65
$20,064.47
$18,726.84
$17,478.39
$16,313.16
$15,225.62
$14,210.57
$13,263.20
$12,378.99
$11,553.72
$10,783.48
$10,064.58
$9,393.61
$8,767.36
$8,182.87
$7,637.35
$7,128.19
$6,652.98
$6,209.45
$5,795.48
$5,409.12
FC 400000 Modified Accelerated Cost Recovery System (MACRS)
SV 20000

_x0002_ VDB( B ,0, n , MAX(0, t-1.5), MIN( n , t-0.5),d)

macrs DDB
Year Tax Depre BV Book Depre BV
0 400000 400000
1 $133,333.33 $266,666.67 $266,666.67 $133,333.33
2 $177,777.78 $88,888.89 $88,888.89 $44,444.44
3 $59,259.26 $29,629.63 $24,444.44 $20,000.00
4 $29,629.63 $0.00
$380,000.00
• It is the only approved tax depreciation system in the United States.
• It automatically switches from DDB or DB to SL depreciation.
• It always depreciates to zero; that is, it assumes S _x0002_ 0.