G BULLETIN GGO, U. S. DEPARTMENT OF AGRICULTURE. 



The third method is called the sinking-fund method. It is based 

 on the assumption that the depreciation on a structure at any time 

 is equal to the accumulations of a sinking fund established for renewal 

 at the end of its useful life. The depreciated value plus this sinking 

 fund (actual or imaginary) at any period equals the original cost. 



COMPARISON OF DEPRECIATION FORMULAS 



USEFUL LIFE. IN YEARS 



Fig l. 



It should be observed that none of these formulas takes into con- 

 sideration interest on investment, output, cost of operation, or main- 

 tenance charges. Figure 1 gives a graphic comparison of the above 

 formulas. 



The following table is a comparison of the annual depreciation on 

 a $600 machine that has an assumed useful life of five years. It also 

 is assumed that at the end of this period it will have a scrap value of 

 S100. The annual depreciation is computed by the three formulas 

 described : 



Comparison of three methods of computing depreciation. 



Years. 



Straight- 

 line 



method. 



Diminish- 

 ing-value 

 method. 



Sinking- 

 fund 

 method, 

 6 per cent 

 interest. 



First 



$100 

 100 



$180. 72 

 126. 28 

 88.25 

 61.67 

 43.08 



$88. 70 

 94.02 

 99.66 

 105. 64 

 119.98 



Second 



Third 



100 



100 



100 



Fourth 



Fifth 





Total 



500 500. 00 



500. 00 



