This is a general "What's the right way" question for how to depreciate equipment. I am across the pond -- but can't imagine there being much difference for this type of situation.
I have a liquid propane tank at my home. It was installed just over four years ago. I've been leasing it during the intervening time. The cost to buy, back then, was somewhere north of $400.
I'm disenchanted with leasing and being beholden to the LP supplier.
Today the price for the same tank, new, is $788. Keep in mind -- I'm proposing buying the 4 yo tank that's already installed -- and the supplier has agreed to depreciate the cost.
They want to charge me $630.40 (via depreciating the current, new, price of $788 by 20%).
It occured to me perhaps that's not _fair_. Is it? Or should they be offering me a depreciated cost of $360 based on the price of the tank 4 years ago? (80% of $450).
Since they're leasing me the tank (and receiving annual lease payments) I presume they've been depreciating (in some manner) the tank on _their_ books for the last 4 years, yes?
I understand acct'g principles can be different between different jurisdictions. I also understand the supplier just wants the money, as much as possible. But, can anyone tell me if I've got, in general, a sound argument for insisting on using the new cost from 4 years ago?
Perhaps this has less to do with the principles of depreciation and more to do with the art of negotiation. I don't know much about propane tanks but I imagine that there would be a cost to the company to remove it, and given that you suggest a new one is $788 and they want $630 for a 4 year old tank one would think that they'd be lucky to get anywhere near that on the open market.
Why not forget about their calculations and tell them that you'll give them $450 (or whatever you think it fair) and if not they can take it away and you'll go elsewhere. You may find that if they take it out it's effectively worthless to them. I had a similar thing years ago when I rented my first PC, after a year I asked the shop to take it back, they tried to negotiate another years rental at a reduced rate but as I knew it was worthless to them I offered them 2 monthly payments to buy it and they jumped at the chance.
Thank you! That has occurred to me ("come n' get it I don't want it"). But then there's the "removal cost" they are sure to apply. Propane business (here) is a bit insulated. Only a few providers in the area which tamps down competition for a captive audience: I'm going to give up heating water or cooking with flame?
But the thought that they don't/won't have much use for a used tank -- except as scrap is something I'd not thought of.
Finally, and to keep this on topic, I realize its a little backwards but what about the original question of depreciation? Owned equipment is never depreciated at an inflation adjusted price. The basis is the purchase price. So, the idea that they would attempt to depreciate the equipment at a "todays going rate" is a bit dubious, yes? And brings us back to: this is more of an offer to negotiate. Hmmm, she did say she'd provide a proposal...
