Depreciation (Edexcel IGCSE Maths)

Spec point — 1C

Depreciation

What is depreciation?

• Depreciation is a type of repeated percentage change

• It refers to the value of something decreasing by percentage amounts over time

  • E.g. the value of a car, a laptop, or a mobile phone

• The time period for each change is often a year

  • But changes may also occur monthly, weekly, etc.
  • An exam question will specify what the time period is

• The rate of percentage decrease may be constant, or may vary from period to period

• Depreciation questions are answered using the usual techniques for repeated percentage change

  • Just be sure to answer in the context of the question

Worked Example A car was bought for £30 000.

It depreciated by 12% in the first year.

It then depreciated by a further 8% each year for the next two years.

Calculate the value of the car three years after it was bought.

Answer:

This is a depreciation question, so it is an example of repeated percentage decrease

The percentage multipliers are

• 0.88 for a decrease of 12%

• 0.92 for an decrease of 8%

These decreases occur one after the other

• First a decrease by 12%

• Then two successive decreases by 8%

So multiply 30,000 by 0.88$\times$0.92$\times$0.92 (or 0.88$\times$0.92²)

$30000\times0.88\times0.92^{2}=22344.96$

Final answer: £22 344.96