I would explain to the CEO how was can avoid as much loss as possible by using the double-declining balance method. Using this method allows us to claim a higher depreciation expense in the early years of the buildings use and will gradually decrease over time. This will allow us to minimize the amount of loss and takes into account the rise of maintenance cost as the building ages.
For example, if this building’s estimated use is 30 years, has a salvage cost of $2,000,000 and we use a 30% factor than the following could be claimed:
Year Depreciation Expense
1 $100,000.00
2 $99,000.00
3 $98,010.00
4 $97,029.90
5 $96,059.60
6 $95,099.00
7 $94,148.01
8 $93,206.53
9 $92,274.47
10 $91,351.72
11 $90,438.21
12 $89,533.83
13 $88,638.49
14 $87,752.10
15 $86,874.58
16 $86,005.84
17 $85,145.78
18 $84,294.32
19 $83,451.38
20 $82,616.86
21 $81,790.69
22 $80,972.79
23 $80,163.06
24 $79,361.43
25 $78,567.81
26 $77,782.14
27 $77,004.31
28 $76,234.27
29 $75,471.93
30 $74,717.21
Showing the CEO these calculation will show how the larger amounts of depreciation expense are claimed at the beginning of the buildings use—leaving less chance for loss and more breathing room in terms of increasing maintenance cost.
