Handbook of Civil Engineering Calculations

SINKING-FUND METHOD:

DEPRECIATION CHARGES

An asset costing $20,000 is expected to remain serviceable for 5 years and to have a sal-

vage value of $3000. Compute the depreciation charges, using the sinking-fund method

and an interest rate of 4 percent.

Calculation Procedure:

1. Compute the annual sinking-fund payment
   Use the relation R = JF(SFP). With W= $20,000 - $3000 - $17,000, N= 5 years, and i =
   4 percent, SFP = 0.18463. Then R = $17,000(0.18463) = $3139.


2. Compute the annual depreciation charges
   Use the relation D 17 = R(SPCA), or D 1 = $3139(1.000) = $3139; D 2 = $3139(1.040) =
   $3265; D 3 = $3139(1.082) = $3396; D 4 = $3139(1.125) = $3531; D 5 = $3139(1.170) =
   $3673. Then SD 5 = $17,004.

FIXED-PERCENTAGE (DECLINING-

BALANCE) METHOD

An asset cost $5000 and has a life expectancy of 6 years and an estimated salvage value
of $800. Construct a depreciation schedule for this asset, using the fixed-percentage
method.

Calculation Procedure:

1. Compute the rate of depreciation
   Use the relation h = 1 - (L/P 0 )l/N, where h = rate of depreciation. Substituting gives h = 1

• (800/5000)1/6 - 0.2632, or 26.32 percent.

2. Compute the end-of-year book value
   Use the relation D 1 = hP 0 = 0.2632($5000) = $1316. Then P 1 =P 0 -D 1 = $5000 - $1316
   = $3684. Likewise, D 2 = 0.2632($3684) = $969.63; P 2 = $3684 - $969.63 = $2714.37. In
   a similar manner, D 3 = $714.42, P 3 = $1999.95, D 4 = $526.39, P 4 = $1473.56, D 5 =
   $387.84, P 5 = $1085.72, D 6 = $285.76, P 6 = $799.96.

COMBINATION OF FIXED-PERCENTAGE
AND STRAIGHT-LINE METHODS

An asset cost $20,000 and has a life of 8 years and a salvage value of $1000. The IRS per-
mits use of the double-declining-balance method to charge depreciation. Compute the de-
preciation charges.