If the so-called "pro" has to adopt such a tight fisted approach, then clearly he is not successful. He should not be in this trade.
Depreciation is a given in any business.
The technology of digital cameras advance so fast that there is no chance for your equipment to depreciate fully over time.
Your equipment is obsolete long before their depreciation to zero date.
Last edited by ricohflex; 20th April 2013 at 11:38 PM.
Depreciation of equipment in this case doesnt bother me much, at least to my business. The launch of 1DX doesnt mean my 3 year old 1Dmk3 (owned by previous user 1 year + me 2 year) cannot be used or no value. To me any equipment is precious and they have served me well over the years. In fact a piece of used equipment if found another user, is adding value to the new owner increasing its intended productivity.
For my stand, a piece of old and used equipment has its own uses.
WTB Manfrotto RC4 L Bracket
I wouldn't call someone who buys a Ferrari or Lambo in Singapore dumb either (hey, you beat me to the traffic lights... but here I am next to you again!).
Maybe those taxi drivers who drive Mercedes cab should be called "dumb" too.
Though depreciation is a fact of life when you are doing a business. It should be accountable for.
Each individual take it differently and I believe the essence of this post is to educate aspiring pro this side of equation, which seems to be so simple but often neglected.
I don't agree that the technology is outdated quicker than the depreciation schedule if you know what to do with them. I believe some of my camera equipment has beyond the depreciation schedule, but still relevant today... Of course, if one constantly needed to feel that newer technology makes them feel better or more "pro", they simply need to watch their spending. I would rather to have the money that I exchange with my hard work in my pocket then the equipment manufacturers. But there are other things to consider for capital outlay which sometimes works better as far as taxation is concern.
Though I know the intention of TS is ruffle some feathers... but I am sure many took it personally if they fall into a category of "hobbyist"... is there a need for this? It is an open interpretation.
But, I can't have a thread where everyone nods and gives me thumbs up - that would be so one sided and propaganda its no longer a discussion anymore. Thus the opposition views are good too.
I do hope those have the desire and the ability to take their hobby into money generating levels, do so healthily. Who knows, one day your photography can take you further than your current comfortable job does, and you will want to do it right.
Depreciation cost is included in financial accounting. Hence I don't see why not included into consideration.
The best way of seeing depreciation is this - an asset, when new, is $1,000. You look into your crystal ball and you see that 5 years into the future, it is only worth $500.
Thus, you know the "cost" of the asset per year is ($1000 - $500) / 5 = $100. (Straight line depreciation)
So you can make sure that you need to earn at least $100 per year, on average, for the asset to earn its keep. You can always earn $500 at the end of Year 5 and it would still be the same idea.
For valuation uses, such as free cash flow analysis, depreciation is added back as it is only a conceptual outflow -once again, there is no real cash outflow.
Last edited by Blur Shadow; 22nd April 2013 at 12:01 PM.
The other concept is to recognize the expense upon purchase of the asset.
This concept is probably more in tune with most consumers. Thus, practically anything earned with the asset is considered near full profit (subject to perhaps transportation, meals etc).
Either case, the amount of profit you earn is the same. It is a mere mental framing of the business that will lead people to different decisions.
For professional photographers, camera/lenses and other gears are tools of our trade,
Cost of depreciation on our camera/lenses and other gears is an expenses, we need to factor them in our operating cost, whether do we fully utilize our gears or not.
usually we set a fixed percentage of the depreciation value, so let say is 20% per year, by 5 years later the value of this piece of gear is zero on the book, but if we sold it off for $200, this $200 gain is classify as other income.
talking about depreciation value on from the status of a hobbyist is meaningless, they are not interested to generate income from their hobby, most of the just want to make some extra pocket money, usually they don't find out all the fixed and variable expenses, to price their services with add profit margin on top it.
So if you are taking photography as a hobbyist, don't think too hard and too much, just buy whatever gears within your mean that will make you happy.
and if you want to make a couple of bucks with your hobby, go ahead and be merry, just remember this, there are many people are making a living out of this. Do respect yourself and others.
Our intention is not to sayang everyone's ego, but giving some inside information for people who would use it for the benefit of growing their income generation passion. Unfortunately, we are not here to please everyone because we can't.
One would have to make more right decision in their business to rise to the a comfortable level of income and number of working hours.
Never focus on end result, but always focus on future value. What you do and you don't impact the outcome years to come... Think long term and depreciation is just small part of mechanics.
Best way is to pay a good accountant to tell you your financial position and how to get the best of it.
The end of 5 year value at $500 is called residual value. it is usually determined by owner themselves or market rate.
Just sharing for thoughts, besides the straight line method, there are another 2 more commonly used methods called double declining method and units-of-production - for accounting purposes.
For more information, look here for more fixed assets depreciation method. For IT products such as cameras, video cams, CPUs, AV equipment...etc, the depreciation period in some companies or education institution are fixed at 3, 4 or 5 years due to the new products being launched every now and then. For machineries, buildings or lands, the depreciation period are typically 10 years to 30 years.
Althought most of us here 'does not care' about the value of equipment, but it wont hurt to know more. I will share more tomorrow when reached office tomorrow. Hard to type on a tablet now