(IPPM) in Vegetables - Vegetableipmasia.org
(IPPM) in Vegetables - Vegetableipmasia.org
(IPPM) in Vegetables - Vegetableipmasia.org
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Resource Manual on <strong>IPPM</strong> <strong>in</strong> Vegetable<br />
World Education Philipp<strong>in</strong>es, Inc.<br />
c) Sum-of-the-years digit method<br />
Straight-l<strong>in</strong>e Method<br />
In the straight-l<strong>in</strong>e method, first estimate the life span and scrap value from the orig<strong>in</strong>al<br />
purchase price. Determ<strong>in</strong>e the annual depreciation us<strong>in</strong>g the formula:<br />
Annual Depreciation =<br />
Purchase Price - Scrap Value<br />
Estimated Life Span<br />
For example, the orig<strong>in</strong>al cost of a farm implement is PhP 12,000. It has a life span of ten<br />
years and a scrap value of PhP 2,000. How much is the annual depreciation charge<br />
Solution:<br />
Annual Depreciation =<br />
PhP 12,000 - PhP 2,000<br />
10 Years<br />
= PhP 1,000/year<br />
Decl<strong>in</strong><strong>in</strong>g Balance Method<br />
In the decl<strong>in</strong><strong>in</strong>g balance method, estimate the depreciation charge based on the orig<strong>in</strong>al<br />
cost of the property, its life span and the percentage of the orig<strong>in</strong>al cost to be charged for<br />
depreciation. Each year of use of the property reduces its estimation of the depreciation<br />
charge for the ensu<strong>in</strong>g year. This method leaves a small, unrecovered balance at the last<br />
year of propertys useful life.<br />
Sum-of-the-Years-Digits Method<br />
For this method, first determ<strong>in</strong>e the life span of the property. Then take the sum of the<br />
digits of the years, and use this as the denom<strong>in</strong>ator of each years depreciation. For<br />
example, if the life span is 10, the sum-of-the-years-digits is 55 (10 + 9 + 8 + + 1)<br />
This becomes the denom<strong>in</strong>ator.<br />
This method assumes a heavy depreciation charge for the earlier years. To ensure this, the<br />
numerator for the first year takes on the value of the last year. It is just similar to a<br />
countdown, where we assign the last year, <strong>in</strong> this case 10, for year 1. We then arrive at a<br />
ratio where the numerator is what has been described before and denom<strong>in</strong>ator is the sumof-the-years-digits.<br />
To get the depreciation charge per year, multiply the ratio by the<br />
orig<strong>in</strong>al cost.<br />
Source:<br />
Cruz, C. A. and M. Calderon. ENRM 231: Economics of Upland Resources. University of The Philipp<strong>in</strong>es<br />
Open University. 194-201 pp.<br />
207