Florida · Business math · Episode 7

Depreciation and Percent Complete

2:09

The transcript is below. The full episode plays in the EstatePass CT dashboard.

Chapters

0:00Depreciation
0:38Book value
1:07Percent
1:34Revenue
1:50Recap

In short

Straight-line depreciation is (cost − salvage) ÷ life: an $80,000 lift with $8,000 salvage over 4 years depreciates $18,000 a year, so after two years accumulated depreciation is $36,000 and book value is $44,000. Under the percentage-of-completion method, percent complete is cost to date ÷ total estimated cost: $228,000 ÷ $570,000 = 40 percent, so revenue earned on a $760,000 contract is $304,000.

Book value = cost − accumulated depreciation, never below salvage.
Percent complete = cost to date ÷ total estimated cost.
Revenue earned = percent complete × contract price.

Transcript

0:00Depreciation

Two Florida accounting questions trip up almost everyone who sees them. Both are one formula. The trap is stopping one step too early. A contractor buys a lift for $80,000. After four years it will be worth $8,000 in salvage. Straight-line depreciation spreads the difference evenly: 72,000 over 4 years is $18,000 a year. Two years in, the depreciation adds up to $36,000.

0:38Book value

Pause. After two years, what is the lift’s book value? $44,000. Book value is the cost minus the depreciation so far. Most people answer 36,000. That is the depreciation, not what is left. And book value never drops below salvage: at year four it stops at $8,000.

1:07Percent

Now percentage of completion. A contract is priced at $760,000. So far the job has cost $228,000, and it will take another $342,000 to finish. Percent complete is cost to date over the total estimated cost: 228 over 570 is 40 percent.

1:34Revenue

Revenue earned is that percent times the contract price: 40 percent of 760,000 is $304,000. Divide by the contract price instead of the total cost, and you get the wrong percent.

1:50Recap

Cost minus salvage, over the life. Cost to date over total cost, times the price. Next: the slab most people get wrong. Subscribe so you catch it.

Sources

Florida Business & Finance bank questions fl-bf-d-acct-prod-t01-015 and t01-012, worked

Independent study material. EstatePass is not affiliated with NASCLA, PSI, Pearson VUE, the Florida CILB or the CSLB, and nothing here is legal advice. Any jobs and companies in our episodes are fictional.