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After Completing This Chapter...
The student should be able to:
· Describe depreciation, deterioration, and obsolescence.
· Distinguishvarious types of depreciableproperty and differentiatebetween depreciation
expenses and other business expenses..
· Usehistoricaldepreciation methods to calculate theannual depreciation chargeand
book valueover the asset's life.
· Explain the differences between the historical depreciation methods and the modified.
Modified Accelerated Cost Recovery System (MACRS)
· Use MACRS to calculate allowableannual depreciation chargeandbook valueover the
asset's life for various cost bases, placed in service combinations, property classes, and
recovery periods.
· Fully account forcapital gainsllosses, ordinary losses, anddepreciation recapturedue
to the disposal of a depreciated business asset.
· Use theunits of production anddepletiondepreciation methods as needed in engineering
economicanalysisproblems.
· Use spreadsheetsto calculate depreciation.
QUESTIONS TO CONSIDER )
- When determiningtheir cash flow,ownersof baseball teams dedu~tstadiumdepreciation,
which can amount to as much as $5 million per year. How would this affect their
calculations?
- Even though Barry Bonds is in peak.health and hit a record 73 home runs in 2002,
the IRS considers him a "wasting asset" and allows the owners of his baseball club to
depreciate a large portion of his contract. Explain.
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