Issue link: https://iconnect007.uberflip.com/i/1529411
80 PCB007 MAGAZINE I NOVEMBER 2024 that's expected to last 10 years, you wouldn't account for the entire $80,000 in the first year. Instead, you would record an expense of $8,000 each year over 10 years. is reflects how the machine is used to generate revenue over time. Why Does Depreciation Matter? Depreciation is crucial for several reasons, especially in a technical and production-heavy field like electronics manufacturing: 1. Cost allocation: By spreading out the cost of expensive equipment, businesses can match the expense with the revenue gen- erated by that equipment. is keeps the books balanced and reflects a more accu- rate picture of profitability. 2. Budgeting for future purchases: Know- ing how long a machine or tool will last (its useful life) helps companies plan for future capital investments. As an engineer, being aware of when equipment may need replacement allows you to plan proj- ects accordingly and avoid unexpected downtime. 3. Tax implications: Depreciation is a tax- deductible expense. Understanding this can help you comprehend the financial decisions your company makes regarding purchasing and maintaining equipment. Types of Depreciation ere are several methods to calculate depreciation, but the ones you are most likely to encounter are: 1. Straight-line Depreciation is is the simplest method. You take the cost of the asset, subtract its salvage value (what it might be worth at the end of its useful life), and divide it by the number of years it will be used. For example, if a $50,000 PCB functional tester is expected to last five years with no sal- vage value, the annual depreciation expense would be: Annual depreciation = $50,000 ÷ 5 = $10,000 or $10,000 annual depreciation You'll record $10,000 of depreciation expense each year for five years. 2. Declining Balance Depreciation is method accelerates the depreciation, meaning you'll record more depreciation in the early years and less in later years. It's useful for assets like machinery that lose value quickly in the first few years. For instance, if that same $50,000 PCB func- tional tester has a 20% depreciation rate, you'd depreciate $10,000 in the first year (20% of $50,000). In the second year, you'd calculate depreciation based on the remaining value of the asset. 3. Units of Production Depreciation is method ties depreciation to the actual usage of the asset. It's particularly relevant for equipment where wear and tear depend on production volume, not time. If a machine is expected to produce 100,000 units during its life, and it costs $50,000, each unit would carry a depreciation cost of: Depreciation per unit = $50,000 ÷ 100,000 units = $0.50/unit; If you produce 20,000 units in one year, your depreciation for that year would be: 20,000 × $0.50 = $10,000