Resource Manual on Integrated Production and Pest ... - julitoaligaen

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