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Posted By Todd Ressler, Saturday, September 12, 2020
I spent a few hours this morning doing some research on heavy equipment purchases. It seems like such a large up front expense for anyone, regardless of the size of their company. To help "soften the blow" to the checkbook it is important to factor in "depreciation" to spread the cost of the equipment over a period of time. Straight line depreciation is the most simple (and there is nothing wrong with simple) way to calculated depreciation. It is easy to calculate, consistent and reduces the opportunity for an errors. It will also help your accountant during tax time or when working on your annual operating budget. The formula for straight line depreciation is as follows: 1) COST OF EQUIPMENT INCLUDING TAX & DELIVER (SUBTRACT) SALVAGE VALUE=X 2) DIVIDE 1 BY THE NUMBER OF YEARS OF USEFUL LIFE TO GET A PERCENTAGE OF DEPRECIATION PER YEAR 3)MULTIPLY DEPRECIATION RATE BY ASSET COST=ANNUAL DEPRECIATION AN EXAMPLE WITH NUMBER IS AS FOLLOWS: PURCHASE PRICE-55,000 SALVAGE PRICE-1,450 ASSET COST -53,550 USEFUL LIFE-5 YEARS (1/5=20%) 20% X 53,550=10,710 Hope this helps. I am always available to assist owners with equipment purchases, equipment valuations and fleet inventory. Best TR

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