# Depreciation _ Flat Rate Depreciation by xiaoyounan

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```									Depreciation & Flat Rate (Straight Line) Depreciation

 Depreciation is the estimated loss in value of assets.
 Book value is the estimated value of an item at any time.
Book value = cost price – total depreciation to that time
 When book value = 0, the item is ‘written off’.
 Scrap value is the book value of an item at the end of its useful life.

Flat Rate (Straight Line) Depreciation
Flat rate depreciation is when an item depreciates by a fixed amount each year.
It is also known as prime cost depreciation.
BVT = P – dT , where
P = cost price (\$)
BVT = book value (\$) after time (T)
T = time since purchase (years)
d = rate of depreciation (\$ per year) (this is a fixed amount per year or a percentage of P per year)

Total depreciation = cost price – current value
Rate of depreciation =
Examples
1. A printing press is bought for \$15000 and depreciates by the flat rate method. Depreciation was 20%
of the prime cost price each year. Its useful life was 4 years.
a) Find the annual depreciation.
P = 15000 d = 20% of P
d = 0.20 × 15000
d = \$3000 per year
Annual depreciation is \$3000.
b) Draw a depreciation schedule for the useful life of the press. Draw a graph of the book value
against time.

c) Find the relationship between the book value and time and use it to find the scrap value.
d = \$3000, P = \$15,000
BVT = P – dT
BV4 = 15000 – 3000T
BV4 = 15000 – 3000×4 (as the press is scrapped after 4 years)
BV4 = \$3000
2. Jarrod bought his car 5 years ago for \$15,000. Its current market value is \$7,500. Assuming straight
line depreciation, find:
a) The car’s annual depreciation rate.
Total depreciation = cost price – current value
= 15,000 – 7,500
= \$7,500
Rate of depreciation =

=
= \$1,500 per year.
The annual depreciation rate is \$1,500.

b) The relationship between the book value and time. Use it to find when the car will have a value
of \$3000.
BV = P – dT
BVT = 15000 - 1500×T
When BVT = 3000
3000 = 15000 - 1500×T
12000 = 1500×T
T = 12000÷1500
T=8
The car will have a book value of \$3000 when it is 8 years old.

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