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How To Calculate The Estimated Sales Value Of Your System

This Tutorial addresses:
You want to sell your system but you do not know how to calculate the value of it. There are two basic accounting methods for this.

The first is called "Straight Line Depreciation".


IBM 486 (1989 - 2007)

The formula is very straight forward. The formula is ((Cost - Salvage Value) / Life Of The System).

An example of this is that you have a $1500 rig with a salvage value of $375, and you've had it for two years.

Then you would calculate like this:

(($1500 - $375) / 2) = $562.5

Year 1 = $1500 - $562.5 = $937.5

To calculate the expense for year two you multiply the depreciation rate by the month of sale. If the sale month is October, that would be 10/12.

Year 2 = $562.5 * (10/12) = $468.75

$937.5 - $468.75 = $468.75

The second method is called "Declining balance depreciation".


Radio Shack Tandy Model TRS-80 (1977 - 1988)

For this method the formula is as follows:

Depreciation = Depreciation Rate x Book Value Of Asset

Depreciation Rate = Accelerator x Straight Line Rate

For this method say you build a PC worth $2000 and there's a 5 year shelf life with a salvage value of $525.

Straight Line Depreciation Rate = 1 / 5 = 0.20
Declining Balance = 0.20 x 2 = 0.40
Depreciation = 0.40 x $2000 = $800
Depreciation Rate = $2000 - $800 = $1200

With this method you can expect your rig to be worth $1200. The first method is more accurate, the second method is easier to compute and will give you a faster quote.

How to calculate the salvage value


Apple Power PC Performa 600 (1992 - 1996)

This directly ties into the first formula. It's also pretty simple if you know basic math. To calculate the salvage value:

S = P (1 - i) ^ y

P = Original Price
i = Depreciation Rate
y = Age in years
S = Salvage value

What's the salvage value of a system if it's originally priced at $2000, it depreciates at 35% annually, and it's owned for three years?

S = $2000 (1 - .35) ^ 3 = $549.25

So the salvage value of a $2000 rig with a three year life would be $549.25. But for accounting purposes, it would be rounded to the nearest whole dollar so $549.

Sources:


Antec SX-385 II (2002 - 2006)

- http://www.slideshare.net/matrixlab/salvage-value-calcu...
- http://accountingexplained.com/financial/non-current-as...
- http://accountingexplained.com/financial/non-current-as...
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