From these formulas a schedule of appraisal for a given asset may be made up showing its values as at the end of each year of its estimated life. For an asset costing $150, of which the service life is 5 periods and the scrap value, due to inadequacy, is $50, such an appraisal schedule would work out as follows:
| Age in Periods | Periodic Depreciation | Depreciated or Appraised Value | Total Accumulated Depreciation |
|---|---|---|---|
| 0 | $..... | $150.00 | $..... |
| 1 | 20.00 | 130.00 | 20.00 |
| 2 | 20.00 | 110.00 | 40.00 |
| 3 | 20.00 | 90.00 | 60.00 |
| 4 | 20.00 | 70.00 | 80.00 |
| 5 | 20.00 | 50.00 | 100.00 |
Here, the fixed depreciation base, i.e., the amount to be written off over the 5 periods, is $100 ($150-$50). Graphically presented below, we have the straight line AB representing the periodic appraised values, and the line OC, the accumulating depreciation.
Graphic Chart—Straight Line Method
(b) Working Hours Method
Where the “Working Hours” method is used, the life of the asset, instead of being estimated in calendar units of time, is given in service units as so many working hours. Thus, if it is estimated that a machine will stand 12,000 hours of operation, its service life is stated as 12,000 working hours. Record is kept of the number of hours the machine is operated during each fiscal period and compared with the estimated length of service life (also in working hours) to give the proportion of the total depreciation which must be charged to a given period. Using the same example—an asset costing $150, with scrap value of $50, and service life of 12,000 working hours—the appraisal schedule will be as shown below, assuming that during the first fiscal period the asset was used 3,000 hours, during the second 4,500 hours, the third 2,700, the fourth 1,200, and that it was scrapped some time during the fifth fiscal period after another 600 hours of operation.
| Age in Periods | Service Hours | Depreciated or Appraised Value | Depreciation Rate % | Total Accumulated Depreciation |
|---|---|---|---|---|
| 0 | ..... | ..... | $150.00 | $ ........ |
| 1 | 3,000 | 25 | 125.00 | 25.00 |
| 2 | 4,500 | 37½ | 87.50 | 62.50 |
| 3 | 2,700 | 22½ | 65.00 | 85.00 |
| 4 | 1,200 | 10 | 55.00 | 95.00 |
| 5 | 600 | 5 | 50.00 | 100.00 |
| 12,000 | 100 | |||
The following chart shows graphically the appraised values and the accumulated depreciation as at the end of successive fiscal periods. The character of the curves here has no relation to the lapse of calendar time, i.e., fiscal periods, but depends entirely on the degree of intensity of operation of the asset, i.e., its service life in working hours. The above curves are true, therefore, only for the particular data assumed and do not, in any way, indicate a characteristic tendency of this method. Were the bottom line of the chart, the abscissa, laid off proportionately on the basis of working hours instead of fiscal periods, both graphs would, of course, become straight lines. It is only because information as to values is desired at the close of each fiscal period that the curves representing values become broken lines.
