Model depreciation using flat-rate, reducing-balance and unit-cost methods, and find the value of an asset over time.

What this dot point is asking

You must apply all three depreciation methods, find an asset's value over time, and recognise which method suits a situation.

Flat-rate (straight-line) depreciation

The asset loses the same amount each year, often a fixed percentage of the original cost. If $V_0$ is the purchase price and $D$ is the annual loss, the value after $n$ years is:

Reducing-balance depreciation

The asset loses a fixed percentage of its current value each year, so the dollar loss shrinks over time. With depreciation rate $r$ (decimal), the value after $n$ years is:

Unit-cost depreciation

Here the value falls by a fixed amount for each unit of use (kilometres driven, items produced, hours run), rather than per year. If the asset loses $c$ dollars per unit and has been used $u$ units:

Choosing and comparing methods

Flat-rate gives a straight-line decline and never quite reflects how assets lose value fastest when new. Reducing-balance drops quickly at first then levels off, matching items like cars and electronics, and never reaches exactly zero. Unit-cost suits assets whose wear depends on use rather than time.