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Chapter 8 Depreciation
Copyright 2010 McGraw-Hill Australia Pty Ltd PowerPoint slides to accompany Croucher, Introductory Mathematics and Statistics, 5e
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Learning Objectives
Use the latest depreciation rules of the Australian Taxation Office Calculate depreciation using the prime cost (straight line) method Calculate depreciation using the diminishing value (reducing balance) method Calculate depreciation rates using the units-of-production method Prepare a depreciation schedule Calculate the current written-down value (book value) of an asset
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8.1 Introduction
Depreciable assets
The value of an asset gradually reduces over time as it approaches the end of its useful life. Assets that lose value in this way are said to depreciate The amount of this lost value is called depreciation and represents a depreciation expense The assets themselves are known as depreciable assets, and each one has limited effective life
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Under the simplified depreciation rules, you can claim an immediate deduction for most depreciating assets costing less than $1000 and pool most other depreciating assets
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The adjustment will ensure that your pool deduction is based on the correct estimate of the adjustable value of all your assets and their taxable-purpose proportions for the current and future income years
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days held 100 % Annual depreciation asset's cost 365 asset's effective life
Note that 365 is replaced by 366 in a leap year The annual rate of depreciation (as a percentage) is given by:
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Solution
From Table 8.2, the effective life of a photocopier is 5 years. The number of days from 8 August 2009 to 30 June 2010 (inclusive) is 327
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Note that the book value at the end of year 0 is defined to be the original cost The depreciation rate represents the fraction of the book value that is depreciated each year
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For depreciating assets held initially after 10 May 2006, the formula for the decline in value is:
opening adjusted value days held 20 asset's effectivel ife 365
Amount of depreciation
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Summary
We used the latest depreciation rules of the Australian Taxation Office We calculated depreciation using the prime cost (straight line) method We also calculated depreciation using the diminishing value (reducing balance) method And we calculated depreciation rates using the units-ofproduction method We calculated the current written-down value (book value) of an asset Finally we looked at keeping depreciation records
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