1. Problem Recognition, Definition, and Evaluation
On 2006 MPV car series 307 SW from Peugeot sold with price Rp. 498.000.000. on 2013 it sold on Rp. 200.000.000.
What method to calculate depreciation?
2. Development of the Feasible Alternative
Method available for depreciation:
– Straight line (SL) Method
– Decline balancing (DB)
– The Modified Accelerated Cost Recovery System (MACRS)
3. Development of the Outcomes and Cash flows for Each Alternative
Refer to information on poin 1 and table MACRS Class Lives and Recovery Periods:
Market Value on 2013 Rp. 200.000.000
4. Selection of Criterion (or Criteria)
Methods, time convention and recovery rate for calculating the depreciation under MACRS are applied in US, for others country need to follow each government regulation.
5. Analysis and Comparison of the Alternative
All of the methods to calculate depreciation above were time base, to calculate depreciation is also possible using unit of production for subject with decreasing value in a function of use.
6. Selection of the Preferred Alternative
Refer to Sullivan (2012): “Depreciation method that larger PWs (of depreciation amounts) are preferred by a firm that want to reduce the present worth of its income taxes paid to the government” (pp. 304)
7. Performance Monitoring and Post Evaluation of Result
Large depreciation amount was preferred method for the 1st owner and also good for buyer of the 2nd hand car, they will only paid small amount of depreciation.
8. References :
1. Sullivan W.G., Wicks E.M., Koelling C.P, (2012), Engineering Economics pp. 292 – 308, 15th edition, Prentice Hall.
2. Scott, Dr. Amos, PE (2012). Skills and knowlage of Cost Engineering, pp10.14 – 10.22, 5th edition, AACE International, Createspace.
3. Otosia.com (2012), Bursa Mobil Bekas. Retrieved from: http://mobil.kapanlagi.com/peugeot_307_sw_a_t_b_1991_ow.html