EQUIPMENT RATES – DEPRECIATION

The objective of the depreciation charge is to recognize the decline of value of the machine as it is working at a specific task. This may differ from the accountant’s depreciation schedule-which is chosen to maximize profit through the advantages of various types of tax laws and follows accounting convention. A common example of this difference is seen where equipment is still working many years after it was “written off” or has zero “book value”.Depreciation schedules vary from the simplest approach, which is a straight line decline in value, to more sophisticated techniques which recognize the changing rate of value loss over time. The formula for the annual depreciation charge using the assumption of straight line decline in value isD = (P’ – S)/Nwhere P’ is the initial purchase price less the cost of tires, wire rope, or other parts which are subjected to the greatest rate of wear and can be easily replaced without effect upon the general mechanical condition of the machine.