Lect 18
Lect 18
Lect 18
Lecture No. 18
Department of Electrical Engineering
Mehran University of Engg. & Technology,
Jamshoro.
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Physical
Economic depreciation depreciation
the gradual decrease in Depreciable life (how long?)
utility in an asset with
use and time Functional
depreciation Salvage value (disposal value)
If the power station equipment were to last for ever, then interest on
Assets having a definite useful life and a life longer than the capital investment would have been the only charge to be made.
one year However, in actual practice, every power station has a useful life ranging
from fifty to sixty years. From the time the power station is installed, its
Assets that must wear out, become obsolete or lose value equipment steadily deteriorates due to wear and tear so that there is a
gradual reduction in the value of the plant.
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Straight – Line (SL) Method (2) Straight – Line (SL) Method (3)
The depreciation curve (PA) follows a straight line path, indicating constant annual
depreciation charge
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Straight – Line (SL) Method (4) Straight – Line (SL) Method (5)
However, this method suffers from two defects. Example: A transformer costing Rs 90,000 has a useful life of 20
years. Determine the annual depreciation charge using straight line
method. Assume the salvage value of the equipment to be Rs.
Firstly, the assumption of constant depreciation 10,000.
charge every year is not correct.
For the second year, the depreciation charge will be made on the
diminished value (i.e. Rs 9,000) and becomes 0·1 × 9,000 = Rs 900. The
value of the equipment now becomes 9000 − 900 = Rs 8100.
For the third year, the depreciation charge will be 0·1 × 8100 = Rs 810
and so on.
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THANKS
Firstly, low depreciation charges are made in the late years when the
maintenance and repair charges are quite heavy.