Predict what happens to book value over time before the formal reveal.
What Happens to Book Value Over Time?
Before you learn the formal depreciation methods, make a prediction. How do you think the value of Sarah's printer should change on the company's books each year? There is no wrong answer yet — just your best business reasoning.
Sarah bought a $15,000 3D printer. She expects it to last 5 years. At the end of 5 years, she thinks she can sell it for about $1,500 for parts.
Your Task:
In your notebook, create a table with 5 rows (one for each year). For each year, write down what you think the book value should be at the end of that year. Explain your reasoning for the pattern you chose.
Option A: Equal Drops
The book value drops by the same amount each year. Simple and predictable.
Year 1: $12,300 → Year 2: $9,600 → Year 3: $6,900...
Option B: Big Drops Early
The book value drops faster in early years when the asset is newest and most productive.
Year 1: $10,500 → Year 2: $7,800 → Year 3: $5,700...
Option C: Your Own Pattern
You think there is a different way the value should change. Describe your pattern.
Write your own numbers and explain your reasoning.
Look at the two patterns below. What do you notice? What questions do you have?
Pattern 1: Straight-Line
| Year | Book Value |
|---|---|
| 0 | $15,000 |
| 1 | $12,300 |
| 2 | $9,600 |
| 3 | $6,900 |
| 4 | $4,200 |
| 5 | $1,500 |
Pattern 2: Accelerated
| Year | Book Value |
|---|---|
| 0 | $15,000 |
| 1 | $10,500 |
| 2 | $7,350 |
| 3 | $5,145 |
| 4 | $3,302 |
| 5 | $1,500 |
Discussion Prompt (4 minutes):
- Which pattern makes more sense for a 3D printer? Why?
- Would the answer change if the asset was a building instead of equipment?
- How would an investor view each pattern differently?
- What real-world factors might cause an asset to lose value faster in early years?
Both patterns are real depreciation methods used in business:
- Pattern 1 (Straight-Line): The most common method. Equal expense each year. Simple, predictable, and widely accepted by investors.
- Pattern 2 (Accelerated): Larger expense in early years, smaller in later years. Used for assets that lose value quickly or become obsolete fast.
In the next lessons, you will learn exactly how to calculate each pattern, when to use each one, and how they affect a company's financial statements differently. For now, the key insight is: the method you choose changes the story your financial statements tell.
Key insight: Depreciation is not about what the asset is worth on the open market. It is about how the company allocates the asset's cost across the years it provides value. The method is a choice — but it must be reasonable and consistently applied.