Handbook of Civil Engineering Calculations

and depreciation is charged for one year beyond the cost-recovery period. If the salvage
value that accrues from disposal of the asset exceeds the book value of the asset at that
date, the excess is subject to taxation.
The depreciation charges are recorded in the accompanying table.

2. Compute the end-of-year book values
   The results are recorded in the accompanying table. Currently, the federal government
   recognizes only the straight-line method and ACRS for allocating depreciation. However,
   many state governments still recognize other methods. Moreover, a firm may wish to
   compute depreciation by some other method for its private records as a means of obtain-
   ing a more accurate appraisal of its annual profit.

Depreciation Book value
Year charge, $ at year end, $

1 120,000(0.200) = 24,000 120,000 - 24,000 = 96,000

2 120,000(0.320) = 38,400 96,000 - 38,400 = 57,600

3 120,000(0.192) = 23,040 57,600 - 23,040 = 34,560

4 120,000(0.115) =13,800 34,560-13,800=20,760

5 120,000(0.115) =13,800 20,760-13,800 =6,960

6 120,000(0.058)= 6,960 6,960- 6,960 = O

SINKING-FUND METHOD:

ASSETBOOK VALUE

A factory constructed at a cost of $9,000,000 has an anticipated salvage value of
$400,000 at the end of 30 years. What is the book value of this factory at the end of the
tenth year if depreciation is charged by the sinking-fund method with an interest rate of 5
percent?

Calculation Procedure:

1. Compute the cumulative depreciation
   This method of depreciation accounting assumes that when the asset is retired, it is re-
   placed by an exact duplicate and that replacement capital is accumulated by making uni-
   form end-of-year deposits in a reserve fund. The cumulative depreciation ^Dv is there-
   fore equated to the principal in the fund at the end of the Uth year. Or, ^Dv =
   JF(SFPXUSCA). So W = $9,000,000 - $400,000 = $8,600,000, SFP = 0.01505 for
   30 years, (7-10 years, and i = 5 percent, SAo = $8,600,000(0.01505)(12.578) =
   $1,628,000.


2. Compute the book value
   At the end of 10 years, the book value P 10 = PQ- SZ) 10 = $9,000,000 - $1,628,000 =
   $7,372,000.