Isn’t Sinking Fund Depreciation pretty much the same thing as Straight-line deprecation, which is legal? Sinking fund depreciation adjusts the percentage amortized each year to ensure a fixed value is deducted across the life of the asset. Fixed line depreciation achieves pretty much the same thing - deducts a fixed value across the life of the asset. So why is Straight-line legal and Sinking Fund illegal?
Because sinking fund depreciation says the investment depreciates more in year x+1 than it does in year x. That just doesn’t seem reasonable for just about anything that is truly depreciating and seems like a transparent attempt to push expenses into the future. Even accountants have their limits.
>Sinking fund depreciation adjusts the percentage amortized each year to ensure a fixed >value is deducted across the life of the asset. No, it ensures a constant rate of return on the depreciated asset value. The value of depreciation is not fixed.
chrismaths Wrote: ------------------------------------------------------- > >Sinking fund depreciation adjusts the percentage > amortized each year to ensure a fixed > >value is deducted across the life of the asset. > > No, it ensures a constant rate of return on the > depreciated asset value. The value of depreciation > is not fixed. Well - that would apply to fixed-line as well, wouldn’t it? Although we are not explicitly calculating the percentage - we are in essence not keeping the percentage constant?
JoeyDVivre Wrote: ------------------------------------------------------- > Because sinking fund depreciation says the > investment depreciates more in year x+1 than it > does in year x. That just doesn’t seem reasonable > for just about anything that is truly depreciating > and seems like a transparent attempt to push > expenses into the future. Even accountants have > their limits. OK - fair enough. But it all sounds like much of muchness really - considering that fixed line depreciation at the end of the day can result in the same thing. I guess though, if sinking fund depreciation was able to result in depreciating the same fixed amount being depreciated…nothing technically would stop it from say depreciating 1% in the first year and 99% in the next year.
Nope because it’s just compounding that makes the depreciation increase. For any reasonable rates and time periods, sinking fund is not especially different from straight-line.
C’mon is it really that different? For a 4% rate and a 5 year depreciation the first year is $ 185 depreciation and the last year is $216 depreciation so at most we are about 7% off from straightline (and right at straightline in the middle).