SOLUTION. Rate for 100 pounds, first-class matter, scale number 31, is found by the complete table to be $2.84.

Under the express company's rule that all fractions of a cent must be equalized as one cent, the charge would be $6.14.

(b) Second-class Rates:

Multiply the first-class rate on 100 pounds by the number of pounds in the shipment, and divide by 100.

Deduct 25% of this result to find the second-class charge.

Problem. What is the charge on 216 pounds of second-class matter, when the rate scale number is 31?

SOLUTION. Charge for 216 pounds, scale number 31, first class, is $6.14. 75% of $6.14 $4.605, or $4.61.

=

Written Work

Find the charge for the following shipments by express from Chicago: 1. 26-pound box of cameras to Burdette, Iowa. Classification 1 (first class).

2. 25 pounds of candy to Calumet, Iowa.

Classification 1.

3. 30 pounds of seeds to Carpenter, Iowa. Classification 2.

4. 28 pounds of telephone instruments, unboxed, to Casey, Iowa. Classification 11⁄2 times first class.

5. 163 pounds of statuary to Carroll, Iowa. Classification 1. First-class rate for 100 pounds, scale number 29, $2.70.

6. 191 pounds of shrubs to Burt, Iowa. Classification 2. Firstclass rate for 100 pounds, scale number 31, $2.84.

274. Definitions.

CHAPTER XXXII

DEPRECIATION

Depreciation is the inevitable decrease in the value of fixed assets due to use and the lapse of time.

Fixed assets are the permanent investments in property used in the conduct of business, such as buildings and machinery.

Carrying value is the cost of an asset less the depreciation pro

vided.

275. Factors of Depreciation. While repairs may be made to prolong the usefulness of a building or other fixed asset, there is sure to come a time when the property is either entirely useless, or when it is good business economy to replace it. Suppose a machine which cost $2,400 can be used for ten years, at the end of which time it is worth $400. During the ten years a loss of $2,000 will take place and this loss should be spread over the ten year period. The amount of depreciation to charge as an expense each year will depend upon:

(a) The cost of the asset ($2,400 in the illustration).

(b) The estimated life of the asset (10 years in the illustration). (c) The estimated scrap or residual value ($400 in the illustration). (d) The method of dividing the total estimated depreciation among the years of life.

Methods of Depreciation. There are a number of methods of computing the annual depreciation, the following being those used most frequently:

First, a fixed rate computed each year on the cost of the property. This is known as the straight line method because it results in an equal annual charge.

Second, a fixed rate on the diminishing value, which results in a diminishing annual charge.

Third, the sum of the years' digits method, which also results in a diminishing annual charge. This method is explained on page 326.

276. The Straight Line Method. This is the simplest and the customary method. Applied to the illustration, the annual depreciation would be computed as follows:

$2,400.00 Cost

400.00 Estimated scrap value

2,000.00 Total depreciation in 10 years

$2,000.00 10 = $200.00 the annual depreciation charge.

If it is desired to know the rate of depreciation, it can be computed as follows:

277. Diminishing Value Percentage Method. This method has a theoretical advantage. The depreciation and repairs are both expenses; since the repairs will tend to increase from year to year it is desirable to have the depreciation charge decrease so that the sum of the repairs and the depreciation will be fairly uniform. It has a practical disadvantage, however, because it is necessary to use tables of logarithms to compute the rate. The formula for computing the rate is:

r = 1

-1-V

In this formula, r is the depreciation rate; s is the scrap value; c is the cost; and n is the number of years of estimated life. Applied to the illustration

The value of r can be computed with the aid of logarithms. With such a table the rate is found to be 16.404 %.

The annual depreciation

CARRYING VALUE

$2,400.00

The depreciation the first year is 16.404 % of $2,400.00; the second year, 16.404% of $2,006.30; et cetera.

This

278. Diminishing Value, Sum of Years' Digits Method. method has the theoretical advantage of a diminishing annual charge, while avoiding the practical disadvantage of requiring logarithms to compute the rate. Each year's depreciation is computed by multiplying the total depreciation by a fraction, the numerator of which is a year's digit (taken in inverse order) and the denominator of which is the sum of the digits of all the years.

Applied to the illustration the asset has an expected life of ten years; hence the sum of the years' digits is:

1+ 2+ 3+ 4+ 5+ 6+ 7+ 8+ 9+ 10 = 55

The total depreciation is $2,000.00, and the depreciation the first year is of $2,000.00; the depreciation the second year, of $2,000.00; et cetera. The depreciation may be tabulated as follows: