| Group | Life in Periods | Value to be Depreciated[38] | Rate of Depreciation | Amount of Periodic Depreciation |
|---|---|---|---|---|
| A | 5 | $100,000 | 20 | $20,000 |
| B | 10 | 75,000 | 10 | 7,500 |
| C | 15 | 60,000 | 6⅔ | 4,000 |
| D | 20 | 120,000 | 5 | 6,000 |
| $355,000 | $37,500 | |||
Mean life is $355,000 ÷ $37,500, or 9⁷/₁₅ periods.
Under the dollar-year method, the invested values are weighted by the length of their investment term and thus all investments are reduced to the common basis of one dollar for one year:
Mean Life
Dollar-Year (or Weighted Ratio) Method
| Group | Life | Value to be Depreciated | Turnover Rate in Longest Life-Period | Total Investment During Longest Life-Period | Dollar- Years |
|---|---|---|---|---|---|
| (a) | (b) | (c) | (d)[39] | (e) | (f)[40] |
| A | 5 | $100,000 | 4 | $400,000 | $2,000,000 |
| B | 10 | 75,000 | 2 | 150,000 | 1,500,000 |
| C | 15 | 60,000 | 1⅓ | 80,000 | 1,200,000 |
| D | 20 | 120,000 | 1 | 120,000 | 2,400,000 |
| $355,000 | $750,000 | $7,100,000 | |||
Column (f) ÷ column (e), (7,100,000 ÷ 750,000 = 9⁷/₁₅) gives the mean life.
Column (e) ÷ the longest life-period, 20 years, (750,000 ÷ 20 = 37,500) gives an annual charge for the whole plant.
What is known as “mean” age or plant expectancy as to remaining life may be found similarly. Assume a physical appraisal made after 12 years’ life of the above assets:
Mean Age (Life Expectancy)
Direct Method
| Group | Life | Unexpired or Remainder Life | Condition % | Values to be Depreciated | Values Already Depreciated |
|---|---|---|---|---|---|
| (a) | (b) | (c) | (d)[41] | (e) | (f) |
| A | 5 | 3 | 60 | $100,000 | $40,000 |
| B | 10 | 8 | 80 | 75,000 | 15,000 |
| C | 15 | 3 | 20 | 60,000 | 48,000 |
| D | 20 | 8 | 40 | 120,000 | 72,000 |
| $355,000 | $175,000 | ||||