# Simple depreciation

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## Introduction

In Grade 10, the ideas of simple and compound interest were introduced. In this chapter we will be extending those ideas, so it is a good idea to go back to the Finance chapter and revise what you learnt in Grade 10. If you master the techniques in this chapter, you will understand about depreciation and will learn how to determine which bank is offering the better interest rate.

## Depreciation

It is said that when you drive a new car out of the dealership, it loses 20% of its value, because it is now “second-hand”. And from there on the value keeps falling, or depreciating . Second hand cars are cheaper than new cars, and the older the car, usually the cheaper it is. If you buy a second hand (or should we say pre-owned !) car from a dealership, they will base the price on something called book value .

The book value of the car is the value of the car taking into account the loss in value due to wear, age and use. We call this loss in value depreciation , and in this section we will look at two ways of how this is calculated. Just like interest rates, the two methods of calculating depreciation are simple and compound methods.

The terminology used for simple depreciation is straight-line depreciation and for compound depreciation is reducing-balance depreciation . In the straight-line method the value of the asset is reduced by the same constant amount each year. In the compound depreciation method the value of the asset is reduced by the same percentage each year. This means that the value of an asset does not decrease by a constant amount each year, but the decrease is most in the first year, then by a smaller amount in the second year and by an even smaller amount in the third year, and so on.

## Depreciation

You may be wondering why we need to calculate depreciation. Determining the value of assets (as in the example of the secondhand cars) is one reason, but there is also a more financial reason for calculating depreciation - tax! Companies can take depreciation into account asan expense, and thereby reduce their taxable income. A lower taxable income means that the company will pay less income tax to the Revenue Service.

## Simple depreciation (it really is simple!)

Let us go back to the second hand cars. One way of calculating a depreciation amount would be to assume that the car has a limited useful life. Simple depreciation assumes that the value of the car decreases by an equal amount each year. For example, let us say the limited useful life of a car is 5 years, and the cost of the car today is R60 000. What we are saying is that after 5 years you will have to buy a new car, which means that the old one will be valueless at that point in time. Therefore, the amount of depreciation is calculated:

$\frac{\mathrm{R}60\phantom{\rule{3.33333pt}{0ex}}000}{5\phantom{\rule{3.33333pt}{0ex}}\mathrm{years}}=\mathrm{R}12\phantom{\rule{3.33333pt}{0ex}}000\phantom{\rule{1.em}{0ex}}\mathrm{per year}.$

The value of the car is then:

 End of Year 1 R60 000 - 1 $×$ (R12 000) = R48 000 End of Year 2 R60 000 - 2 $×$ (R12 000) = R36 000 End of Year 3 R60 000 - 3 $×$ (R12 000) = R24 000 End of Year 4 R60 000 - 4 $×$ (R12 000) = R12 000 End of Year 5 R60 000 - 5 $×$ (R12 000) = R0

#### Questions & Answers

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Damian Reply
what king of growth are you checking .?
Renato
What fields keep nano created devices from performing or assimulating ? Magnetic fields ? Are do they assimilate ?
Stoney Reply
why we need to study biomolecules, molecular biology in nanotechnology?
Adin Reply
?
Kyle
yes I'm doing my masters in nanotechnology, we are being studying all these domains as well..
Adin
why?
Adin
what school?
Kyle
biomolecules are e building blocks of every organics and inorganic materials.
Joe
anyone know any internet site where one can find nanotechnology papers?
Damian Reply
research.net
kanaga
sciencedirect big data base
Ernesto
Introduction about quantum dots in nanotechnology
Praveena Reply
what does nano mean?
Anassong Reply
nano basically means 10^(-9). nanometer is a unit to measure length.
Bharti
do you think it's worthwhile in the long term to study the effects and possibilities of nanotechnology on viral treatment?
Damian Reply
absolutely yes
Daniel
how to know photocatalytic properties of tio2 nanoparticles...what to do now
Akash Reply
it is a goid question and i want to know the answer as well
Maciej
characteristics of micro business
Abigail
for teaching engĺish at school how nano technology help us
Anassong
Do somebody tell me a best nano engineering book for beginners?
s. Reply
there is no specific books for beginners but there is book called principle of nanotechnology
NANO
what is fullerene does it is used to make bukky balls
Devang Reply
are you nano engineer ?
s.
fullerene is a bucky ball aka Carbon 60 molecule. It was name by the architect Fuller. He design the geodesic dome. it resembles a soccer ball.
Tarell
what is the actual application of fullerenes nowadays?
Damian
That is a great question Damian. best way to answer that question is to Google it. there are hundreds of applications for buck minister fullerenes, from medical to aerospace. you can also find plenty of research papers that will give you great detail on the potential applications of fullerenes.
Tarell
what is the Synthesis, properties,and applications of carbon nano chemistry
Abhijith Reply
Mostly, they use nano carbon for electronics and for materials to be strengthened.
Virgil
is Bucky paper clear?
CYNTHIA
carbon nanotubes has various application in fuel cells membrane, current research on cancer drug,and in electronics MEMS and NEMS etc
NANO
so some one know about replacing silicon atom with phosphorous in semiconductors device?
s. Reply
Yeah, it is a pain to say the least. You basically have to heat the substarte up to around 1000 degrees celcius then pass phosphene gas over top of it, which is explosive and toxic by the way, under very low pressure.
Harper
Do you know which machine is used to that process?
s.
how to fabricate graphene ink ?
SUYASH Reply
for screen printed electrodes ?
SUYASH
What is lattice structure?
s. Reply
of graphene you mean?
Ebrahim
or in general
Ebrahim
in general
s.
Graphene has a hexagonal structure
tahir
On having this app for quite a bit time, Haven't realised there's a chat room in it.
Cied
what is biological synthesis of nanoparticles
Sanket Reply
Other chapter Q/A we can ask
Moahammedashifali Reply

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Source:  OpenStax, Siyavula textbooks: grade 11 maths. OpenStax CNX. Aug 03, 2011 Download for free at http://cnx.org/content/col11243/1.3
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