Depreciation of Equipment - the Aspiring Pros need to know

[hanqiang1011]

Good morning peeps...

I have reached office and here I am, if all still interested here are the 3 methods in detail:

Scenario, you bought a 1DX @ S$8,500/-. You determine that it is useful for 5 years and after the 5 years there is a residual value (RV) of S$1,500/- left.

Note: Accumulate depreciation (Acc Dep) & Net Book Value (NBV)

Using the Straight line method:

Cost of equipment - RV ÷ 5 years
= S$8,500 - S$1,500 ÷ 5
= S$1,400/- depreciation charge per year

Year 1 depreciation (2013) = S$1,400; Total Acc Dep = S$1,400; NBV = S$5,600
Year 2 depreciation (2014) = S$1,400; Total Acc Dep = S$2,800; NBV = S$4,200
Year 3 depreciation (2015) = S$1,400; Total Acc Dep = S$4,200; NBV = S$2,800
Year 4 depreciation (2016) = S$1,400; Total Acc Dep = S$5,600; NBV = S$1,400
Year 5 depreciation (2017) = S$1,400; Total Acc Dep = S$7,000; NBV = S$0 (Fully depreciated)

-----------------------------------------------------------------------------------------

Since you determined it to have a RV of S$1,500/- left, you decided to put on CS B&S Section on 2017 to sell by bidding. By a stroke of luck, you managed to sell at S$2,000/- the different in amount is income gain thru sales of depreciated equipment.

After note: I am not a cerified public accountant (CPA). This serves only as a guidance for general knowledge. Thanks.

 

[hanqiang1011]

And so, you bought a 1DX @ S$8,500/- for your work or profession. You determine that it is useful for 5 years.

Note: Net Book Value (NBV)

Using the Double-Declining Method:

(We can ignore the RV in DDM)

Straight line rate = 100% ÷ 5 year usefulness = 20%

Double Declining Balance = 20% x 2 = 40%

Year 1 depreciation = S$8,500 x 40% = S$3400
NBV = S$8,500 - S$3,400 = S$5,100

Year 2 depreciation = S$5100 x 40% = S$2,040
NBV = S$5,100 - S$2,040 = S$3,060

Year 3 depreciation = S$3,060 x 40% = S$1,224
NBV = S$3,060 - S$1,224 = S$924

Year 4 depreciation = S$924 x 40% = S$369.60
NBV = S$924 - S$369.60 = S$554.40

Year 5 depreciation = S$554.40 x 40% = S$221.76
NBV = S$554.40 - S$221.76 = S$332.64

------------------------------------------------

By 2017, the piece of equipment should have a NBV of S$332.64 left. You have a choice of selling it away or let it fully depreciated over the years

Year 6 depreciation = S$332.64 x 40% = S$133.60
NBV = S$332.64 - S$133.60 = S$199.04

Year 7 depreciation = S$199.04 x 40% = S$79.60
NBV = S$199.04 - S$79.60 = S$119.44

Year 8 depreciation = S$119.44 x 40% = S$47.80
NBV = S$119.44 - S$47.80 = S$71.64

Year 9 depreciation = S$71.64 x 40% = S$28.70
NBV = S$71.64 - S$28.70 = S$42.94

And so on and so fore until it reaches zero. But I doubt no one would keep a 1DX till 2021 so when it reaches 5 years, its time for selling it off or buy new technology.

After note: I am not a cerified public accountant (CPA). This serves only as a guidance for general knowledge. Thanks.

 

[hanqiang1011]

You determine the 1DX is useful for 5 years, the RV is S$1,500 and each year you make a certain amount of photos from the assignments.

Using Units of Production Method:

Depreciation charge

Year 1 (2013): Produced 40,000 photos
Year 2 (2014): Produced 30,000 photos
Year 3 (2015): Produced 35,000 photos
Year 4 (2016): Produced 20,000 photos
Year 5 (2017): Produced 40,000 photos

Cost per unit: (Cost of 1DX - RV) ÷ Total usage
= (S$8,500 - S$1,500) ÷ 165,000 photos
= S$0.04 per unit of photo

Year 1 depreciation (2013): 40,000 x S$0.04 = S$1,600
Year 2 depreciation (2014): 30,000 x S$0.04 = S$1,200
Year 3 depreciation (2015): 35,000 x S$0.04 = S$1,400
Year 4 depreciation (2016): 20,000 x S$0.04 = S$800
Year 5 depreciation (2017): 40,000 x S$0.04 = S$1,600
Total Acc Dep = S$6,600

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Since the cost of equipment is still S$400 away from fully depreciation, you decide to keep the unit for another year or until the equipment full depreciates.

Year 6 (2018): Produced 10,000 photos

Year 6 depreciation (2018): 10,000 x S$0.04 = S$400

So at the end of 2018, it fully depreciates so left its RV of S$1,500. One buyer buys your 1DX at S$2,000 and you sell to him at a gain of S$500. This income is generated from the sales of depreciated equipment.

If at the end of 2017, the equipment have S$400 till fully depreciates, you decide not to keep it and sell it away. A buyer is interested to get it since it is useful to him and still a way to go before the shutter life ends, he buys it at S$2,500 from you. In this case, you can either add the original S$400 to RV = S$1,900, hence a S$600 income gain; OR S$2,500 - S$1,500 = S$1,000 income gain. Therefore in both cases the income is gain from sales of depreciated equipment, again.

After note: I am not a cerified public accountant (CPA). This serves only as a guidance for general knowledge. Thanks.

 

[hanqiang1011]

Adding additional costs to any equipment therefore prolonging its useful life, adds additional costs to the equipment. Say in the case of this 1DX, if any point of time it needs repair like changing the shutter unit before the pre-determined 5 years useful period @ S$350/- from CSC; the repair cost prolongs its usage life therefore adding the repair costs to its NBV. By doing so, you determine you could still keep and use it for whatever reasons.

Generally I feel that straight line method applies best to IT products. Most companies will not consider the use the DDM of depreciation on their financial statements. The reason being that it causes the company’s net income in the early years of an asset’s life to be lower than it would be as compared to the straight-line method. As for UOP method, it is typically applied to printing businesses where the printer are their main assets or transportation compaines where most vehicles are their main assets.

I might be wrong in some explanations of method - afterall I chose to be a pg - just learnt before and wants to practise the methods that was taught to me.

:heart: Good day :heart:

 

[ttytian]

To make the whole equation more complex, shouldn't the depreciation during the warranty years be lower. Afterall if you look at the prices in the BnS, those with warranty tend to command higher prices for those without, assuming similar conditions.

 

[sjackal]

To make the whole equation more complex, shouldn't the depreciation during the warranty years be lower. Afterall if you look at the prices in the BnS, those with warranty tend to command higher prices for those without, assuming similar conditions.

Do they break during warranty period?

 

[oracle0711]

Nope, depreciation computation looks at the machine as an asset. Warranty or not, any expense related to it will be treated as operating expenses. Just like PC that company use. It comes with warranty but when computing depreciation, they will not factor in the things you mentioned. Accountants do not like to make things complicated coz life is already complex enough for them.

To make the whole equation more complex, shouldn't the depreciation during the warranty years be lower. Afterall if you look at the prices in the BnS, those with warranty tend to command higher prices for those without, assuming similar conditions.

 

[oracle0711]

Yep. Straight line method is often practiced. Simple to explain and simple to manage.

Adding additional costs to any equipment therefore prolonging its useful life, adds additional costs to the equipment. Say in the case of this 1DX, if any point of time it needs repair like changing the shutter unit before the pre-determined 5 years useful period @ S$350/- from CSC; the repair cost prolongs its usage life therefore adding the repair costs to its NBV. By doing so, you determine you could still keep and use it for whatever reasons.

Generally I feel that straight line method applies best to IT products. Most companies will not consider the use the DDM of depreciation on their financial statements. The reason being that it causes the company’s net income in the early years of an asset’s life to be lower than it would be as compared to the straight-line method. As for UOP method, it is typically applied to printing businesses where the printer are their main assets or transportation compaines where most vehicles are their main assets.

I might be wrong in some explanations of method - afterall I chose to be a pg - just learnt before and wants to practise the methods that was taught to me.

:heart: Good day :heart:

 

[hanqiang1011]

Yep. Straight line method is often practiced. Simple to explain and simple to manage.

Yea... It is quite straight forward to say

 

[Blur Shadow]

Accountants do not like to make things complicated coz life is already complex enough for them.

I beg to differ. Accountants makes things difficult so that they have a reason to exist! Hahaha!

 

[UncleFai]

Don't worry, live within your means, and be happy!

 

[ricohflex]

Wait for Fatty Kim to start a Korean war (unlikely - he is just bluffing) or Wait for PRC and Japan to go to war over Diaoyutai. Then you can be a war photographer there and become world famous soon. No need to worry about depreciation. Death is waiting round the corner.

 

[jonlee]

I find it odd that it seems that only so called photo pros like moaning about hobbyist under cutting them. Ok I understand this is a photographic forum, so of couse

there is more of a moan here. But I hardly see it at my other hobbyist forums.

My other hobbies apart from photography are DIY and cooking.

I do not find builders complaining that I am able to fit up a kitchen at a fraction of the cost of a builder. The professional builder has invested (more than Canon 5d

mk3) in all kinds electrical jig saws, cordless screw drivers etc. with the resulting depreciating cost. Me (Panasonic FZ35 in the process of upgrading to Sony SLT)

with my manual saw and manual screw driver etc. also have depeciating cost. Do I still have to call a pro builder when my friends tell me that my kitchen looks better

than their professionally built kitchens?

In any business as the saying goes:

"If you can't stand the heat get out of the kitchen"

Speaking of kitchen, we do not hear of our local hawkers and restaurants complaining that after they have invested so much in their restaurants and cooking untensils

etc., we got some up start hobbyist cooks that is frying better chay kuay teow in their ten dollar twenty year old wok that has probably depreciate to one dollar,

putting them out of business.

Just factor everything in, whether it is for business or pleasure and stop moaning.

 

[ALFREDC]

I find it odd that it seems that only so called photo pros like moaning about hobbyist under cutting them. Ok I understand this is a photographic forum, so of couse

there is more of a moan here. But I hardly see it at my other hobbyist forums.

My other hobbies apart from photography are DIY and cooking.

I do not find builders complaining that I am able to fit up a kitchen at a fraction of the cost of a builder. The professional builder has invested (more than Canon 5d

mk3) in all kinds electrical jig saws, cordless screw drivers etc. with the resulting depreciating cost. Me (Panasonic FZ35 in the process of upgrading to Sony SLT)

with my manual saw and manual screw driver etc. also have depeciating cost. Do I still have to call a pro builder when my friends tell me that my kitchen looks better

than their professionally built kitchens?

In any business as the saying goes:

"If you can't stand the heat get out of the kitchen"

Speaking of kitchen, we do not hear of our local hawkers and restaurants complaining that after they have invested so much in their restaurants and cooking untensils

etc., we got some up start hobbyist cooks that is frying better chay kuay teow in their ten dollar twenty year old wok that has probably depreciate to one dollar,

putting them out of business.

Just factor everything in, whether it is for business or pleasure and stop moaning.

Naive thinking.

Unfair comparison.

Every business industry is unique with its own set of dynamics and challenges. Shove that hawker and builder comparison.

The amateur undercutting and corrosion the creative field is a very real thing. Snake eating its own tail.

I am not a photographer nor would brand myself as one, even though I have much more expensive toys then the real pros does. I am on the other side of the spectrum where I hire photographers and while I welcome the sad state the photography industry is in now, thanx to technology and us amateurs all, I also wonder what happens in the future when the balance is excessively and unhealthily tipped. It is seldom good news.

AND, reading the thread, it seems that those pros so far (at least those who I think are the pros) seems to be rather civil in the discussion, but it is the amateurs that are losing their cool in the thread and jumping up and down.

Funny.

 

[ricohflex]

Although TS has explained that he used a knowingly inaccurate title to grab your attention, it nevertheless reveals a Freudian slip.
If you read the title of the thread, you will know the troubled state of mind of the TS. Presumably a so-called "pro". There is no evidence of civility in the thread title. The title is unnecessarily demeaning, full of hatred and completely off-topic.

Depreciation is a given in any business. Being overly calculative is not the same as being cost-conscious. We don't find Dominic Khoo or Steve McCurry ranting over small issues.

 

[JasonB]

Although TS has explained that he used a knowingly inaccurate title to grab your attention, it nevertheless reveals a Freudian slip.
If you read the title of the thread, you will know the troubled state of mind of the TS. Presumably a so-called "pro". There is no evidence of civility in the thread title. The title is unnecessarily demeaning, full of hatred and completely off-topic.

Depreciation is a given in any business. Being overly calculative is not the same as being cost-conscious. We don't find Dominic Khoo or Steve McCurry ranting over small issues.

You good sir, IS the person WITH the troubled state of mind.

Just look at all the emo things you wrote all over my thread, repetitively. You just, cannot, let, go.

TS has deliberately used the wrong title to his thread. His entire message was about curtailing expenditure of an aspiring pro.
It had nothing to do with hobbyists. TS has purposely used the phrase "dumb hobbyist" in a mis-guided effort to arouse readers' interest. Sort of a verbal hook.

My assessment of what TS did, is that: it is a pitiful reflection of his lack of confidence in the message that he wants to say.

Even if you address the actual content of his message, it is a sad one. If one is so afraid of investing in good photographic equipment, then do not be in the professional photography business. Factoring in depreciation of equipment is a given in any trade. No need to mention.

It is not the price that you quote after you have factored in depreciation.
It is whether you are considered good enough by prospective client to command a particular price.
If one is considered to be a very lousy "pro" then whether you factor in depreciation or not is not the point - you can't get the project.


Leave it to more highly skilled photographers who are confident of excelling in this business and who can make lots of money from it.

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.

Wait for Fatty Kim to start a Korean war (unlikely - he is just bluffing) or Wait for PRC and Japan to go to war over Diaoyutai. Then you can be a war photographer there and become world famous soon. No need to worry about depreciation. Death is waiting round the corner.

I can image your face everything you post:

 

[wildcat]

Naive thinking.

Unfair comparison.

Every business industry is unique with its own set of dynamics and challenges. Shove that hawker and builder comparison.

The amateur undercutting and corrosion the creative field is a very real thing. Snake eating its own tail.

I am not a photographer nor would brand myself as one, even though I have much more expensive toys then the real pros does. I am on the other side of the spectrum where I hire photographers and while I welcome the sad state the photography industry is in now, thanx to technology and us amateurs all, I also wonder what happens in the future when the balance is excessively and unhealthily tipped. It is seldom good news.

AND, reading the thread, it seems that those pros so far (at least those who I think are the pros) seems to be rather civil in the discussion, but it is the amateurs that are losing their cool in the thread and jumping up and down.

Funny.

Really? Twenty years ago, IT industry was all about in house programmers hired locally. Fifteen years ago, importing India programmers was the way to undercut the cost of locally hired programmers. Ten years ago, outsourcing to India without needing to import these programmers in became a norm. Then everyone started outsourcing HR, Finance and other non-trade cost centres.

We live in a world where Nokia was the Untouchable seven years ago, and Blackberry was for the executive. Five years ago, iPhone was up-and-coming and Nokia and BB were on the decline. Three years ago iPhone is #1, and Android was up-and-coming (with HTC, Motorola, etc). Today, there is only Samsung and iPhone... but Windows is back, and Nokia and BB seems to be trying to claw their way back.

State of the art for me, used to be the Compact Disc. Then it was mp3. Today, iTunes seem to have resolved the problem of piracy (incidentally, for me, it was with cassette tapes where shops in Far East Plaza would mix and match what I need for $10).

Twenty years ago, digital cameras were already growing out of infancy. The trend has been growing for that long - if you are a professional photographer, then your modus operandi should have changed with the times - because the dynamics of change and challenges have changed and we are living in a new world, with new solutions offered and new sets of problems. We were long out of Kansas, Dorothy.

 

[ALFREDC]

if you are a professional photographer, then your modus operandi should have changed with the times - because the dynamics of change and challenges have changed and we are living in a new world, with new solutions offered and new sets of problems.

Indeed. I am sure in addition to the photographers lagging behind, Nokia and Blackberry could use such fine advice from you too. :thumbsup:

We live in a world where Nokia was the Untouchable seven years ago, and Blackberry was for the executive. Five years ago, iPhone was up-and-coming and Nokia and BB were on the decline. Three years ago iPhone is #1, and Android was up-and-coming (with HTC, Motorola, etc). Today, there is only Samsung and iPhone... but Windows is back, and Nokia and BB seems to be trying to claw their way back.

 

[jonlee]

Naive thinking.

Unfair comparison.

Every business industry is unique with its own set of dynamics and challenges. Shove that hawker and builder comparison.

The amateur undercutting and corrosion the creative field is a very real thing. Snake eating its own tail.

I am not a photographer nor would brand myself as one, even though I have much more expensive toys then the real pros does. I am on the other side of the spectrum where I hire photographers and while I welcome the sad state the photography industry is in now, thanx to technology and us amateurs all, I also wonder what happens in the future when the balance is excessively and unhealthily tipped. It is seldom good news.

AND, reading the thread, it seems that those pros so far (at least those who I think are the pros) seems to be rather civil in the discussion, but it is the amateurs that are losing their cool in the thread and jumping up and down.

Funny.

Naive thinking. --- Maybe too simplistic for you but look at your reaction.

Unfair comparison.--- What special industry would you like to be compared with?

Every business industry is unique with its own set of dynamics and challenges. --- Every business likes to think they are unique until they are bankrupt and guess

what, they will say because it is because of unique circumstances.

Shove that hawker and builder comparison. --- Hawkering are only for poor Chinamen and who wants to be compared to an Indon or Bangla builder?

The amateur undercutting and corrosion the creative field is a very real thing. --- So only so called Pros can be creative and us lesser beings must kowtow to this

very creative art form.


Snake eating its own tail.--- More like a snake that cannot see its own tail.

I am not a photographer nor would brand myself as one, even though I have much more expensive toys then the real pros does. I am on the other side of the spectrum

where I hire photographers and while I welcome the sad state the photography industry is in now, thanx to technology and us amateurs all, I also wonder what happens in

the future when the balance is excessively and unhealthily tipped. It is seldom good news.--- so you can have expensive toys but do not like others to have the same

capability, affordability and opportunity for the masses because it will affect your uniqueness. What selfish thinking.

AND, reading the thread, it seems that those pros so far (at least those who I think are the pros) seems to be rather civil in the discussion, but it is the amateurs

that are losing their cool in the thread and jumping up and down. --- If I was to rephase the question in the thread to (Depreciation of Equipment - how dumb pro photographer lost money) , I hope everyone will be cool and not jump up

and down, or will that be asking for a miracle?

Funny.--- Hope you can still see the funny side.

 

[ellery]

Although TS has explained that he used a knowingly inaccurate title to grab your attention, it nevertheless reveals a Freudian slip.
If you read the title of the thread, you will know the troubled state of mind of the TS. Presumably a so-called "pro". There is no evidence of civility in the thread title. The title is unnecessarily demeaning, full of hatred and completely off-topic.

Depreciation is a given in any business. Being overly calculative is not the same as being cost-conscious. We don't find Dominic Khoo or Steve McCurry ranting over small issues.

If you are a pro that earn big bucks you still have to be careful with purchases. Why ? It is not because you do not earn enough, it is because as a business person you need to justify purchases. It most definitely not doable to buy the latest version of a body or lens just because it is the latest. If what you have still works for 90% of what you do, there is no justification in buying. That is a key difference between a photo business run as a business and one run as a person hobby. One will generate and retain profits making the owner richer, the other generates to fuel the owners spending sprees leaving no or little profits, owner could even run into situations where nothing was catered for living expenses aka salary since there is always some money coming in. Running a business in the early day (first 3 to 5 years) would see many times the famine/feast cycle until one learns to store the excess from the feast cycle to help make it thru the famine. It is never just about being able to shoot plus PP till **** shines like gold - its about staying alive long enough till things stabilize, being able to PR like mad to be assured of the next call for a job.

Everyone bitches about things - it just wether you are in the circle that hears it.