FC Investment depreciation

CFA Level II Corporate Finance
#1

For ex. in BB Ex 7 you’re given different rates of depreciation for diff years: 30 percent in Year 1, 35 percent in Year 2 and so on…

Depr. for Yr 1 = 30%*2m=600k

Depr Yr 2 = 35%*2m=700k

Why is the depr. not subtracted from the FC balance?

In my opinion it should be calculated as follows:

Depr. Yr 1 = 30%*2m=600k

Depr Yr 2 = 35%*(2m-600k)=490k

Cany anyone shine some light?

#2

It could be as you say, but the common procedures about applying depreciation rates is that those rates are a % of historical value (2m) in this case).

There are other methods of depreciation, check them out.