Example of Annuity Depreciation and Interest Calculation
This example shows you how assets with an annuity depreciation method, a life of 24 months, and an annuity interest rate of 8 percent depreciate each period.
For these assets:
- Calculation Basis: The monthly depreciation expense amount and annuity interest amount is calculated by applying the rate on the net book value at the end of the month.
- Net Book Value: Cost minus Depreciation Reserve minus Impairment Reserve.Note: The annuity interest amount isn't included in the net book value calculation.
In this example, you add an asset and it depreciates until the end of its life.
This table shows the cost and depreciation information for the asset:
| Asset Details | Value |
|---|---|
| Cost | 70,000.00 |
| Life in Months | 24 |
| Annual Interest Rate | 8% |
| Monthly Interest Rate | 0.00643403 |
| Depreciation | 3,157.01 |
| Total Depreciation | 75,768.24 |
| Present Value at 8% | 70,000.00 |
| Present Value at 0% | 75,768.24 |
| Total Interest | 5,768.24 |
This table shows how an asset depreciates over 24 months.
| Month | Remaining Life in Months | Opening NBV | Depreciation | Depreciation Reserve | Annuity Interest | LTD Annuity Interest | Depreciation + Interest |
|---|---|---|---|---|---|---|---|
| 1 | 24 | 70000.00 | 2706.62 | 2706.62 | 450.38 | 450.38 | 3157 |
| 2 | 23 | 67293.38 | 2724.04 | 5430.66 | 432.97 | 883.35 | 3157 |
| 3 | 22 | 64569.34 | 2741.56 | 8172.22 | 415.44 | 1298.79 | 3157 |
| 4 | 21 | 61827.78 | 2759.2 | 10931.42 | 397.8 | 1696.59 | 3157 |
| 5 | 20 | 59068.58 | 2776.96 | 13708.38 | 380.05 | 2076.64 | 3157 |
| 6 | 19 | 56291.62 | 2794.82 | 16503.2 | 362.18 | 2438.82 | 3157 |
| 7 | 18 | 53496.8 | 2812.81 | 19316.01 | 344.2 | 2783.02 | 3157 |
| 8 | 17 | 50683.99 | 2830.9 | 22146.91 | 326.1 | 3109.12 | 3157 |
| 9 | 16 | 47853.09 | 2849.12 | 24996.03 | 307.89 | 3417.01 | 3157 |
| 10 | 15 | 45003.97 | 2867.45 | 27863.48 | 289.56 | 3706.57 | 3157 |
| 11 | 14 | 42136.52 | 2885.9 | 30749.38 | 271.11 | 3977.68 | 3157 |
| 12 | 13 | 39250.62 | 2904.47 | 33653.85 | 252.54 | 4230.22 | 3157 |
| 13 | 12 | 36346.15 | 2923.15 | 36577 | 233.85 | 4464.07 | 3157 |
| 14 | 11 | 33423 | 2941.96 | 39518.96 | 215.04 | 4679.11 | 3157 |
| 15 | 10 | 30481.04 | 2960.89 | 42479.85 | 196.12 | 4875.23 | 3157 |
| 16 | 9 | 27520.15 | 2979.94 | 45459.79 | 177.07 | 5052.3 | 3157 |
| 17 | 8 | 24540.21 | 2999.11 | 48458.9 | 157.89 | 5210.19 | 3157 |
| 18 | 7 | 21541.1 | 3018.41 | 51477.31 | 138.6 | 5348.79 | 3157 |
| 19 | 6 | 18522.69 | 3037.83 | 54515.14 | 119.18 | 5467.97 | 3157 |
| 20 | 5 | 15484.86 | 3057.38 | 57572.52 | 99.63 | 5567.6 | 3157 |
| 21 | 4 | 12427.48 | 3077.05 | 60649.57 | 79.96 | 5647.56 | 3157 |
| 22 | 3 | 9350.43 | 3096.84 | 63746.41 | 60.16 | 5707.72 | 3157 |
| 23 | 2 | 6253.59 | 3116.77 | 66863.18 | 40.24 | 5747.96 | 3157 |
| 24 | 1 | 3136.82 | 3136.82 | 70000 | 20.28 | 5768.24 | 3157 |
| Totals | N/A | N/A | 70,000.00 | N/A | 5768.24 | N/A | 75,768 |
In this example, you add an asset, perform cost adjustments, and the asset depreciates
until the end of its life:
- Asset is added in month 1
- Positive cost adjustment in month 15
- Negative cost adjustment in month 20
This table shows the depreciation and annuity interest calculation after performing these transactions.
| Asset Details | Addition | Positive Adjustment | Negative Adjustment | Total |
|---|---|---|---|---|
| Cost | 70000 | 10000 | -5000 | 75000.00 |
| Remaining Life in Months | 24 | 10 | 5 | N/A |
| Annual Interest Rate | 8% | 8% | 8% | N/A |
| Monthly Interest Rate | 0.00643403 | 0.00643403 | 0.00643403 | N/A |
| Monthly Depreciation | $3,157.01 | $1,035.73 | ($1,019.38) | N/A |
| Total Depreciation | $75,768.24 | $10,357.30 | ($5,096.90) | N/A |
| Present Value at 8% | $70,000.00 | $10,000.00 | ($5000.00) | $75,000.00 |
| Present Value at 0% | $75,768.24 | $10,357.30 | ($5,096.90) | $81,028.64 |
| Total Interest | $5,768.24 | $357.30 | ($96.90) | $6,028.64 |
This table shows how an asset depreciates over 24 months and the effects of the positive and negative cost adjustments.
| Month | Remaining Life in Months | Opening NBV | Depreciation | Depreciation Reserve | Annuity Interest | LTD Annuity Interest | Depreciation + Interest |
|---|---|---|---|---|---|---|---|
| 1 | 24 | 70000.00 | 2706.62 | 2706.62 | 450.38 | 450.38 | 3157 |
| 2 | 23 | 67293.38 | 2724.04 | 5430.66 | 432.97 | 883.35 | 3157 |
| 3 | 22 | 64569.34 | 2741.56 | 8172.22 | 415.44 | 1298.79 | 3157 |
| 4 | 21 | 61827.78 | 2759.2 | 10931.42 | 397.8 | 1696.59 | 3157 |
| 5 | 20 | 59068.58 | 2776.96 | 13708.38 | 380.05 | 2076.64 | 3157 |
| 6 | 19 | 56291.62 | 2794.82 | 16503.2 | 362.18 | 2438.82 | 3157 |
| 7 | 18 | 53496.8 | 2812.81 | 19316.01 | 344.2 | 2783.02 | 3157 |
| 8 | 17 | 50683.99 | 2830.9 | 22146.91 | 326.1 | 3109.12 | 3157 |
| 9 | 16 | 47853.09 | 2849.12 | 24996.03 | 307.89 | 3417.01 | 3157 |
| 10 | 15 | 45003.97 | 2867.45 | 27863.48 | 289.56 | 3706.57 | 3157 |
| 11 | 14 | 42136.52 | 2885.9 | 30749.38 | 271.11 | 3977.68 | 3157 |
| 12 | 13 | 39250.62 | 2904.47 | 33653.85 | 252.54 | 4230.22 | 3157 |
| 13 | 12 | 36346.15 | 2923.15 | 36577 | 233.85 | 4464.07 | 3157 |
| 14 | 11 | 33423 | 2941.96 | 39518.96 | 215.04 | 4679.11 | 3157 |
| 15 | 10 | 40481.04 | 3932.28 | 43451.24 | 260.46 | 4939.57 | 4193 |
| 16 | 9 | 36548.76 | 3957.58 | 47408.82 | 235.16 | 5174.73 | 4193 |
| 17 | 8 | 32591.18 | 3983.04 | 51391.86 | 209.69 | 5384.42 | 4193 |
| 18 | 7 | 28608.14 | 4008.67 | 55400.53 | 184.07 | 5568.49 | 4193 |
| 19 | 6 | 24599.47 | 4034.46 | 59434.99 | 158.27 | 5726.76 | 4193 |
| 20 | 5 | 15565.01 | 3073.2 | 62508.19 | 100.15 | 5826.91 | 3173 |
| 21 | 4 | 12491.81 | 3092.97 | 65601.16 | 80.37 | 5907.28 | 3173 |
| 22 | 3 | 9398.84 | 3112.88 | 68714.04 | 60.47 | 5967.75 | 3173 |
| 23 | 2 | 6285.96 | 3132.9 | 71846.94 | 40.44 | 6008.19 | 3173 |
| 24 | 1 | 3153.06 | 3153.06 | 75000 | 20.45 | 6028.64 | 3173 |
| Totals | N/A | N/A | 75000 | N/A | 6028.64 | N/A | 81028 |
This table shows the accounting entry for the depreciation and annuity interest amount:
| Account | Debit | Credit |
|---|---|---|
| Depreciation Expense account | 2706.62 | |
| Depreciation Reserve account | 2706.62 | |
| Annuity Interest account | 450.38 | |
| Annuity Revenue account | 450.38 | |
| Totals | 3157 | 3157 |