2.1. Depreciation Calculation

Try these first

1. 1.

   What is depreciation?

   Hint

   Think about how assets lose value.

2. 2.

   How do you calculate annual depreciation?

   Hint

   Remember the formula discussed in class.

3. 3.

   What is the formula for calculating depreciation?

   • Initial Price - Tire Cost
   • (Initial Price - Tire Cost - Salvage Value) / Useful Life
   • Initial Price + Tire Cost

   Hint

   Look for the formula that includes division by useful life.

4. 4.

   True or False: Salvage value affects the calculation of depreciation.

   • True
   • False

   Hint

   Consider how salvage value is used in the depreciation calculation.

5. 5.

   If a piece of equipment has a purchase price of ₹5 crore, a tire cost of ₹15 lakh, and a useful life of 10 years with a salvage value of ₹20 lakh, calculate the annual depreciation and the hourly depreciation assuming 1600 hours of operation per year.

   Hint

   Use the formula for annual depreciation and then divide by annual hours of operation.

6. 6.

   An excavator has an initial cost of ₹4 crore, working for 2000 hours annually, with a tire cost of ₹10 lakh and an expected useful life of 12 years. Calculate the total hourly cost, assuming 2% insurance, 3% taxes, and 8% interest.

   Hint

   Break it down into ownership and operating cost to solve.