Page 18: of Marine News Magazine (November 2012)

a useful life of 10-years costs $100,000.00 and will have a salvage value of $20,000.00. It will depreciate at $8,000.00 per year or 10% of its depreciable cost per year.  The declining balance method computes annual depreciation by multiplying the depreciation rate by the book value of the asset at the beginning of the year. Book value = original cost minus accumulated depreciation and the most common rate is usually twice the straight line rate (known as double - declining ? balance method.) The salvage value is not considered but the book value can never be below its salvage value. For example: Our $100,000.00 vessel with a 10 ?year useful life will depreciate at 20% per year. Year one depreciation will be $20,000.00 with a book value of $80,000.00. Year two depreciation will be $16,000.00 with a book value of $64,000.00 (beginning book value - (annual depreciation + accumulated depreciation)) and so on until the predetermined salvage value is reached. Depreciation is reported in Þ nancial statements under GAAP (General Accepted Accounting Principles) in two locations. Depreciation on the income statement is the amount of depreciation for the time period being reported. Depreciation on the balance sheet and represents the accumulated depreciation from the acquisition of the asset to the current reporting period. While depreciation may not be considered as a true expense, it is a reß ection of the perceived tangible net worth of the business. Although vessels may be depreciated down to effective $0.00 on the balance sheet, the off balance sheet valuation of those vessels must be considered when performing a diligent analysis of the companyÕs true value. Depreciation is a very specialized section of the tax laws. Be sure to consult your account or tax advisor for professional guidance.It takes a sharp and savvy commercial marine Þ nancial expert to understand that tugs, barges and other marine vessels like the 102 year old tug ÒNorth DakotaÓ do not die, they just depreciate away É gracefully. Richard J. Paine, Sr . is a recognized authority on U.S. commercial marine lending and leasing. He can be reached at [email protected] us at the Workboat Show Booth #2559SAVE MONEY - CALL US FIRST Choose from one of the largest inventories of marine equipment in the U.S. LINKS? CHAIN? ANCHOR? 3/4 to 4-1/2? Domestic and imported, in stockfor immediate deliveryCLEATS ? ALUMINUM ? STEELweld-on andbolt-on typesfor every applicationPELICAN HOOKS? CHAIN TYPE? WIRE ROPE TYPE Manysizes instock forimmediatedeliveryNo order is too large or too small; ask for our FREE CATALOG and put our gear to work on your vessel1-800-851-3429WWASHINGTON CHAINAND SUPPLY, INC. P.O. Box 3645 ? 2901 Utah Avenue South Seattle, Washington 98124 Phone (206) 623-8500 ? Fax (206) 621-9834November 2012MNNov2012 Layout 18-31.indd 18MNNov2012 Layout 18-31.indd 1811/6/2012 4:08:12 PM11/6/2012 4:08:12 PM