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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.


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.


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:

R 60 000 5 years = R 12 000 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

what is the stm
Brian Reply
is there industrial application of fullrenes. What is the method to prepare fullrene on large scale.?
industrial application...? mmm I think on the medical side as drug carrier, but you should go deeper on your research, I may be wrong
How we are making nano material?
what is a peer
What is meant by 'nano scale'?
What is STMs full form?
scanning tunneling microscope
how nano science is used for hydrophobicity
Do u think that Graphene and Fullrene fiber can be used to make Air Plane body structure the lightest and strongest. Rafiq
what is differents between GO and RGO?
what is simplest way to understand the applications of nano robots used to detect the cancer affected cell of human body.? How this robot is carried to required site of body cell.? what will be the carrier material and how can be detected that correct delivery of drug is done Rafiq
what is Nano technology ?
Bob Reply
write examples of Nano molecule?
The nanotechnology is as new science, to scale nanometric
nanotechnology is the study, desing, synthesis, manipulation and application of materials and functional systems through control of matter at nanoscale
Is there any normative that regulates the use of silver nanoparticles?
Damian Reply
what king of growth are you checking .?
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
yes I'm doing my masters in nanotechnology, we are being studying all these domains as well..
what school?
biomolecules are e building blocks of every organics and inorganic materials.
anyone know any internet site where one can find nanotechnology papers?
Damian Reply
sciencedirect big data base
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.
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
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
characteristics of micro business
for teaching engĺish at school how nano technology help us
How can I make nanorobot?
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
how can I make nanorobot?
what is fullerene does it is used to make bukky balls
Devang Reply
are you nano engineer ?
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.
what is the actual application of fullerenes nowadays?
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.
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
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Mueller 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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