Categoria: Bookkeeping

Yieldstreet distributes Schedule K1, and to answer any questions investors may have about filling them out, we’ve compiled a breakdown of the form below. In this article you can find out what numbers on your Schedule K1 mean, as well as information on where you can find them in your online investment portfolio. The investing https://www.bookstime.com/ information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Many or all of the products featured here are from our partners who compensate us.

Accrual Basis Accounting

Corporations should refer to the Instructions for Form 8810 for the material participation standards that apply to them. Generally, you aren’t at risk for amounts such as the following. For each line, subtract column D from column C and enter the amount in column E. Add each line, column A and column B, and enter the amount in the corresponding line of column C. Get matched with a tax expert who prepares and files everything for you. Your dedicated expert will find every dollar you deserve, guaranteed.

Learn common accounting terms

• However, the partnership has reported your complete identifying number to the IRS.
• Going back to the fact that vitamin K2 comes in several forms, MK7 is found in the highest concentration in animal foods, while the other types are found in mostly fermented foods.
• Yet, vitamin K1 deficiency is rare in adults and common in newborns.
• If you have any foreign source net section 1231 gain (loss), see the Partner’s Instructions for Schedule K-3 for additional information.
• The partnership will provide your section 743(b) adjustment net of cost recovery at year end by asset grouping in box 20, code U.

For this reason, it’s generally best to avoid these kinds of investments in a retirement account. Form W-2 is used to report wages paid to employees and the taxes withheld from them. K-1s list taxable income, much like a Form W-2, but partners are not employees and should not be issued a Form W-2. Overhead (O/H) costs describe expenses necessary to sustain business operations that do not directly contribute to a company’s products or services. Examples include rent, marketing and advertising costs, insurance, and administrative costs. Businesses and organizations use a system of accounts known as ledgers to record their transactions.

Types of Schedule K-1s

This list identifies the codes used on Schedule K-1 for all shareholders. For detailed reporting and filing information, see the specific line instructions, earlier, and the instructions for your income tax return. This is your share of gross income from the property, share of production for the tax year, and other information needed to figure your depletion deduction for oil and gas wells. The corporation should also allocate to you a proportionate share of the adjusted basis of each corporate oil or gas property. See section 453A(c) for information on how to compute the interest charge on the deferred tax liability.

• If you believe the partnership has made an error on your Schedule K-1, notify the partnership and ask for a corrected Schedule K-1.
• Enter as a negative amount any nondeductible expenses reported in box 18 of Schedule K-1.
• Enter your adjusted basis at the beginning of the partnership’s tax year.
• The general ledger (GL or G/L) is the master account containing all ledger accounts.
• The basis of your stock (generally, its cost) is adjusted annually as follows and, except as noted, in the order listed.
• While it’s rare to experience side effects or vitamin k2 toxicity from getting high amounts from food alone, you might develop symptoms if you take high doses of vitamin K supplements.

See the Form 3468 on which you took the original credit for other information you need to complete Form 4255. The partnership will attach a statement for the amount included under code B that’s exempt by reason of section 892 and describe the nature of the income. If the partnership checked the box, see the attached Schedule K-3 with respect to items of international tax relevance. If the partner disposes of a partnership interest in which the basis has been reduced before all of the allocated excess business interest was used, the partner increases its basis immediately before the sale for the amount not yet deducted. You must recognize gain upon a distribution of replacement QSB stock to another partner that reduces your share of the replacement QSB stock held by a partnership.

Reduce interest income reported on this line by any amount included in interest income with respect to the credit to holders of clean renewable energy bonds. To get forms and publications, see the instructions for your tax return or go to IRS.gov. Nonrecourse loans are those liabilities of the partnership for which no partner or what does k1 mean related person bears the economic risk of loss. A nominee who fails to furnish all the information required by Temporary Regulations section 1.6031(c)-1T when due, or who furnishes incorrect information, is subject to a $310 penalty for each failure. The maximum penalty is $3,783,000 for all such failures during a calendar year.

Vitamin K1 prevents mineralization thereby keeping blood pressure levels on the lower side. This eventually helps the human heart to freely pump blood through the body. Mineralization cannot be completely knocked out as it occurs naturally with age and is also a major risk factor for heart disease. Vitamin K, in general, prevents the low level of blood clotting factors and is effective in preventing excessive bleeding.

• If you didn’t materially participate in the activity, follow the Instructions for Form 8582 to figure the interest expense you can report in column (g).
• A liability (LIAB) occurs when an individual or business owes money to another person or organization.
• Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck.
• She earned a bachelor of science in finance and accounting from New York University.
• Those entities are often able to pay out more of their cash flows because of their legal structures, but you’ll probably pay more tax on your end.
• Enter any gain recognized on contributions of property during the year.
• The partnership will provide a statement that describes the qualified timber property for these reforestation expenses.

Best Financial Advisors

Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. KidneyUrology.org is a website dedicated to helping people with solutions related to Nootropics, Obesity, Probiotics, Hypertension, General and Sexual weekness. Millions of Americans are facing with many health issues and we try to give solutions for every individual. Our team focuses on care and support of the patient, the concerns of those at risk, education for the community and medical professionals, methods of prevention, and improved treatment options.

But, you’d probably be surprised to know that in recent years, one of the most researched nutrients in the field of cardiovascular health has been vitamin K2, found in these very foods. The information in our articles is NOT intended to replace a one-on-one relationship with a qualified health care professional and is not intended as medical advice. To help ensure your firm saves time and drives efficiencies, consider a solution like the Thomson Reuters K-1 Analyzer.

Now that you have an idea of how values are recorded in several accounts in a balance sheet, you can take a closer look with an example of how to read a balance sheet. In this article, we will discuss different scenarios to understand how values are reflected in the balance sheet accounts. If the shareholder’s equity is positive, then the company has enough assets to pay off its liabilities. Because the value of liabilities is constant, all changes to assets must be reflected with a change in equity. This is also why all revenue and expense accounts are equity accounts, because they represent changes to the value of assets. Below is a break down of subject weightings in the FMVA® financial analyst program.

The balance sheet equation

Companies usually prepare one at the end of a reporting period, such as a month, quarter, or year. Changes in balance sheet accounts are also used to calculate cash flow in the cash flow statement. For example, a positive change in plant, property, and equipment is equal to capital expenditure minus depreciation expense.

Shareholder Equity

By looking at the sample balance sheet below, you can extract vital information about the health of the company being reported on. Owners’ equity, also known as shareholders’ equity, typically refers to anything that belongs to the owners of a business after any liabilities are accounted for. He doesn’t have a lot of liabilities compared to his assets, and all of them are short-term liabilities.

What is the Shareholders Equity Section of the Balance Sheet?

There are two formats of presenting assets, liabilities and owners’ equity in the balance sheet – account format and report format. In account format, the balance sheet is divided into left and right sides like a T account. The assets are listed on the left hand side whereas both liabilities and owners’ equity are listed on the right hand side of the balance sheet. If all the elements of the balance sheet are correctly listed, the total of asset side (i.e., left side) must be equal to the total of liabilities and owners’ equity side (i.e., right side).

However, if you’re going to become a serious stock investor, a basic understanding of the fundamentals of financial statement usage is a must. In this article, we help you to become more familiar with the overall structure of the balance sheet. pyxero Use this balance sheet for your existing businesses, or enter projected data for your business plan. Annual columns provide year-by-year comparisons of current and fixed assets, as well as current short-term and long-term liabilities.

The balance sheet is one of the three main financial statements, along with the income statement and cash flow statement. The balance sheet is a very important financial statement for many reasons. It can be looked at on its own and in conjunction with other statements like the income statement and cash flow statement to get a full picture of a company’s health.

When analyzed over time or comparatively against competing companies, managers can better understand ways to improve the financial health of a company. Balance sheets are one of the most critical financial statements, offering a quick snapshot of the financial health of a company. Learning how to generate them and troubleshoot issues when they don’t balance is an invaluable financial accounting skill that can help you become an indispensable member of your organization. Depicting your total assets, liabilities, and net worth, this document offers a quick look into your financial health and can help inform lenders, investors, or stakeholders about your business. Based on its results, it can also provide you key insights to make important financial decisions.

Knowing what goes into preparing these documents can also be insightful. In contrast, the income and cash flow statements reflect a company’s operations for its whole fiscal year—365 days. This practice is referred to as “averaging,” and involves taking the year-end (2019 and 2020) figures—let’s say for total assets—and adding them together, and dividing the total by two.

1. As opposed to an income statement which reports financial information over a period of time, a balance sheet is used to determine the health of a company on a specific day.
2. Understanding equity is essential for investors assessing a company’s value and stability.
3. Balance sheets serve two very different purposes depending on the audience reviewing them.
4. Part of shareholder’s equity is retained earnings, which is a fixed percentage of the shareholder’s equity that has to be paid as dividends.
5. Now that the balance sheet is prepared and the beginning and ending cash balances are calculated, the statement of cash flows can be prepared.

It reports a company’s assets, liabilities, and equity at a single moment in time. You can think of it like a snapshot of what the business looked like on that day in time. The balance sheet includes information about a company’s assets and liabilities. Depending on the company, this might include short-term assets, such as cash and accounts receivable, or long-term assets such as property, plant, and equipment (PP&E).

Investors, business owners, and accountants can use this information to give a book value to the business, but it can be used for so much more. Accounts within this segment are listed from top to bottom in order of their liquidity. They are divided into current assets, which can be converted to cash in one year or less; and non-current or long-term assets, which cannot. Do you want to learn more about what’s behind the numbers on financial statements?

Likewise, its liabilities may include short-term obligations such as accounts payable and wages payable, or long-term liabilities such as bank loans and other debt obligations. Like the balance sheet, there are other parts of financial statements, namely, income and cash flow statements. These three are called https://www.bookkeeping-reviews.com/ “Financial Statements”, which the stakeholders use for specific purposes. The balance sheet only shows the financial position today compared to the same date last year. Still, it does not show the breakup of profits earned during the year, nor the cash revenues from different activities of the organization.

LiveCube offers real-time visibility into financial data through interactive dashboards, enabling stakeholders to make informed decisions quickly. Collaborative features facilitate teamwork and knowledge sharing, while predictive analytics help anticipate future trends and risks. Mobile accessibility ensures stakeholders stay connected and responsive even when on the go.

This account includes the amortized amount of any bonds the company has issued. The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. Some liabilities are considered off the balance sheet, meaning they do not appear on the balance sheet. This website is using a security service to protect itself from online attacks. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data.

Companies typically select an ending period that corresponds to a time when their business activities have reached the lowest point in their annual cycle, which is referred to as their natural business year. Organize the information into a formal balance sheet format, with assets on one side and liabilities and equity on the other. Ensure that the balance sheet balances, i.e., the total assets equal the total liabilities and equity. The end-of-year balance sheet organizes accounts into assets, liabilities, and equity. Assets are what the company owns, liabilities are what it owes, and equity is the difference between the two, representing the owners’ stake. The balance sheet shows the carrying values of a company’s assets, liabilities, and shareholders’ equity at a specific point in time.

Being a part of GAAP – Generally Accepted Accounting Principles, the matching principle determines the causal relationship between spending and earnings. Expenses incurred for business operations (business expenses) must be accounted for in the same period as revenue derived from those operations. The matching principle is why companies under GAAP use accrual accounting. The Matching Principle applies to all types of expenses, including cost of goods sold, salaries and wages, rent, utilities, and interest. For example, if a company pays an employee in December for work performed in January, the expense should be recognized in January, the period in which the work was performed.

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TAX RETUEN SERVICES

In other words, you don’t need an industrial-grade eraser to make an entry. Another tool from Deskera is Deskera People that aims to expedite your regular tasks. Tasks like hiring, payroll, leaves, attendance, etc. are now a breeze owing to the tool. Dropshipping it equipment business owners can now expect to relax a bit with the platform making it convenient for them to create drop ship orders based on customer orders. Deskera also offers out-of-the-box templates that tend to uncomplicate your job with well-designed features.

Cash Flow Statement

By matching expenses with the related revenue, the Matching Principle ensures that a company’s income statement accurately reflects its profitability in a given period. If expenses were recognized in a different period than the related revenue, the income statement would not accurately reflect the company’s profitability. The requirement for this concept is the allocation of cost to different accounting periods so that only relevant incomes and expenses are matched. This comparison will give the net profit or loss for that particular accounting period. If an expense is not directly tied to revenues, the expense should be reported on the income statement in the accounting period in which it expires or is used up.

What is the Matching Principle in Accounting? [Explained]

For instance, the direct cost of a product is expensed on the income statement only if the product is sold and delivered to the customer. Like the payroll accrual, this entry will need to be reversed in May, when the actual commission expense is paid. However, the commissions are not due to be paid until May, so you will need to accrue the $4,050 for the month of April since the expense is clearly tied to the sales revenue that was earned in April. However, the commission payment will not be processed until the 15th of February.

Accounting Concepts: Matching Made Easy

For the matching principle, we relate this to the period when a product or service is recognized as being sold (revenue recognition). The matching principle applies a combination of accrual accounting as well as the concept of revenue recognition. Accrual, on the other hand, is when you recognize assets and liabilities as soon as they are incurred regardless of when cash payments occur or when cash receipts are received. If you are stuck on this point, then it may be worth reviewing the accrual accounting definition and example. The matching principle, then, requires that expenses should be matched to the revenues of the appropriate accounting period and not the other way around. – Bajor Art Studio produces picture frames and sells them to wholesalers like Michaels and Hobby Lobby.

1. An adjusting entry would now be used to record the sales commission expense and corresponding liability in March.
2. An example is a commission earned at the moment of sale (or delivery) by a sales representative who is compensated at the end of the following week, in the next accounting period.
3. The matching principle in accounting is one of the basic fundamental principles in Generally Accepted Accounting Principles (“GAAP”).
4. Both adjusted entries and the matching principle help organize information already in your books.
5. If there’s no cause and effect relationship, then the accountant will charge the cost to the expense immediately.
6. In the month of January, Jim’s business had sales of $9,000, which means that Jim owes his salespeople $900 in commissions for January.

When you employ the cash basis of accounting, the principle is disregarded. Because revenue recognition and the cost of goods sold are so closely related, the corporation should recognize the entire $4,000 cost as an expense in the same reporting period as the sale. There isn’t always a cause-and-effect relationship between costs and revenues. As a result of the principle, a systematic allocation of a cost to the accounting periods in which the cost is used up may be required. Suppose a business has a product which sells for 10.00 a unit and costs 4.00 a unit.

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Together with the time period assumption and the revenue recognition principle https://www.business-accounting.net/ forms a necessary part of the accrual basis of accounting. The alternative method of accounting is the cash basis in which revenue is recorded when received and expenses are recorded when paid. Not all costs and expenses have a cause and effect relationship with revenues. Hence, the matching principle may require a systematic allocation of a cost to the accounting periods in which the cost is used up. Hence, if a company purchases an elaborate office system for $252,000 that will be useful for 84 months, the company should report $3,000 of depreciation expense on each of its monthly income statements. The matching principle or matching concept is one of the fundamental concepts used in accrual basis accounting.

In order to abide by the matching principle, Jim or his accountant will need to accrue the $900 expense in January, and later reverse the commission expense in February, after it’s been paid. Jim currently employs two sales people, who receive a 10% commission on sales each month. In the month of January, Jim’s business had sales of $9,000, which means that Jim owes his salespeople $900 in commissions for January.

Because the items generated revenue, the local shop will match the cost of $1,000 with the $6,000 of revenue at the end of the accounting period. So, the expense and the revenue will be booked in September, when the revenue was generated. The revenue recognition principle states that the businesses recognize and record revenue when it is earned irrespective of when they receive the payment. Consequently, the company does not have to wait for the payment from the clients to record and recognize the revenue. When it comes to accounting, the matching principle is often considered synonymous with accrual basis accounting. However, these two terms are not interchangeable and have distinct meanings.

If the accounting rate of return is below the benchmark, the investment won’t be considered. The Accounting Rate of Return (ARR) provides firms with a straight-forward way to evaluate an investment’s profitability over time. A firm understanding of ARR is critical for financial decision-makers as it demonstrates the potential return on investment and is instrumental in strategic planning.

Annual Recurring Revenue (ARR) Calculator

Annual Recurring Revenue (ARR) estimates the predictable revenue generated per year by a SaaS company from customers on either a subscription plan or a multi-year contract. The metric is commonly referred to as a baseline, and it can be easily incorporated into more complex calculations to project the company’s future revenues. Unlike total revenue, which considers all of a company’s cash inflows, ARR evaluates only the revenue obtained from subscriptions. Thus, ARR enables a company to identify whether its subscription model is successful or not.

Tips for Evaluating Capital Investments

1. Accounting Rate of Return helps companies see how well a project is going in terms of profitability while taking into account returns on investments over a certain period.
2. This detailed approach, giving more weightage to current cash flows, enables IRR to assess investment opportunities comprehensively.
3. With the two schedules complete, we’ll now take the average of the fixed asset’s net income across the five-year time span and divide it by the average book value.
4. Finance Strategists has an advertising relationship with some of the companies included on this website.
5. An example of an ARR calculation is shown below for a project with an investment of £2 million and a total profit of £1,350,000 over the five years of the project.

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Limitations to Accounting Rate of Return

It represents the yield percentage a project is expected to deliver over its useful life. A company decided to purchase a fixed asset costing $25,000.This fixed asset would help the company increase its revenue by $10,000, and it would incur around $1,000. ARR helps businesses https://www.business-accounting.net/ decide which assets to invest in for long-term growth by comparing them with the return of the other assets. Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts.

What Is the Accounting Rate of Return (ARR)?

It is a very handy decision-making tool due to the fact that it is so easy to use for financial planning. By comparing the average accounting profits earned on a project to the average initial outlay, a company can determine if the yield on the potential investment is profitable enough to be worth spending capital on. The Accounting rate of return is used by businesses to measure the return on a project in terms of income, where income is not equivalent to cash flow because of other factors used in the computation of cash flow. Calculating what is a temporary account ARR or Accounting Rate of Return provides visibility of the interest you have actually earned on your investment; the higher the ARR the higher the profitability of a project. The Accounting Rate of Return (ARR) Calculator uses several accounting formulas to provide visability of how each financial figure is calculated. Each formula used to calculate the accounting rate of return is now illustrated within the ARR calculator and each step or the calculations displayed so you can assess and compare against your own manual calculations.

If you are using excel as a tool to calculate ARR, here are some of the most important steps that you can take. In this example, there is a 4% ARR, meaning the company will receive around 4 cents for every dollar it invests in that fixed asset. This 31% means that the company will receive around 31 cents for every dollar it invests in that fixed asset.

What Are the Decision Rules for Accounting Rate of Return?

The ARR formula calculates the return or ratio that may be anticipated during the lifespan of a project or asset by dividing the asset’s average income by the company’s initial expenditure. The present value of money and cash flows, which are often crucial components of sustaining a firm, are not taken into account by ARR. Since ARR is based solely on accounting profits, ignoring the time value of money, it may not accurately project a particular investment’s true profitability or actual economic value. In addition, ARR does not account for the cash flow timing, which is a critical component of gauging financial sustainability. In capital budgeting, the accounting rate of return, otherwise known as the “simple rate of return”, is the average net income received on a project as a percentage of the average initial investment. The accounting rate of return is a capital budgeting metric that’s useful if you want to calculate an investment’s profitability quickly.

XYZ Company is considering investing in a project that requires an initial investment of $100,000 for some machinery. There will be net inflows of $20,000 for the first two years, $10,000 in years three and four, and $30,000 in year five. XYZ Company is looking to invest in some new machinery to replace its current malfunctioning one. The new machine, which costs $420,000, would increase annual revenue by $200,000 and annual expenses by $50,000. The machine is estimated to have a useful life of 12 years and zero salvage value. If the ARR is less than the required rate of return, the project should be rejected.

For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing. The Accounting Rate of Return can be used to measure how well a project or investment does in terms of book profit. The average book value is the sum of the beginning and ending fixed asset book value (i.e. the salvage value) divided by two. The ending fixed asset balance matches our salvage value assumption of $20 million, which is the amount the asset will be sold for at the end of the five-year period.

As the ARR exceeds the target return on investment, the project should be accepted. The initial cost of the project shall be $100 million comprising $60 million for capital expenditure and $40 million for working capital requirements. If so, it would be great if you could leave a rating below, it helps us to identify which tools and guides need additional support and/or resource, thank you. ARR is constant, but RRR varies across investors because each investor has a different variance in risk-taking. There are various advantages and disadvantages of using ARR when evaluating investment decisions.

Thus, ARR provides a long-term view of a company’s progress, while MRR is suitable for identifying its short-term evolvement. The ARR can be used by businesses to make decisions on their capital investments. It can help a business define if it has enough cash, loans or assets to keep the day to day operations going or to improve/add facilities to eventually become more profitable. For those new to ARR or who want to refresh their memory, we have created a short video which cover the calculation of ARR and considerations when making ARR calculations. For example, say a company is considering the purchase of a new machine that will cost $100,000. It will generate a total of $150,000 in additional net profits over a period of 10 years.

The annual recurring revenue (ARR) metric is a company’s total recurring revenue expressed on an annualized basis. Managers can decide whether to go ahead with an investment by comparing the accounting rate of return with the minimum rate of return the business requires to justify investments. In the above case, the purchase of the new machine would not be justified because the 10.9% accounting rate of return is less than the 15% minimum required return. The accounting rate of return (ARR) is an indicator of the performance or profitability of an investment. Very often, ARR is preferred because of its ease of computation and straightforward interpretation, making it a very useful tool for business owners, key stakeholders, finance teams and investors.

The predictability and stability of ARR make the metric a good measure of a company’s growth. By comparing ARRs for several years, a company can clearly see whether its business decisions are resulting in any progress. From the investors’ perspective, the predictability and stability of ARR ensure that the metric can be used to compare the company’s performance against its peers, as well as to compare it with its own performance across time. In addition, ARR can also be utilized to assess the company’s long-term business strategies.

To calculate ARR, you take the net income, then divide by initial investment. The Accounting Rate of Return is the overall return on investment for an asset over a certain time period. It offers a solid way of measuring financial performance for different projects and investments.

Accounting rate of return can be used to screen individual projects, but it is not well-suited to comparing investment opportunities. Different investments may involve different time periods, which can change the overall value proposition. The RRR can vary between investors as they each have a different tolerance for risk.

There are a number of formulas and metrics that companies can use to try and predict the average rate of return of a project or an asset. Accept the project only if its ARR is equal to or greater than the required accounting rate of return. Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling. Instead of initial investment, we can also take average investments, but the final answer may vary depending on that. Accounting Rate Of Return is also known as the simple rate of return because it doesn’t take into account the concept of the time value of money, which states that the present value of money is worth more now than in the future.

Accounting rate of return (also known as simple rate of return) is the ratio of estimated accounting profit of a project to the average investment made in the project. The Accounting Rate of Return formula is straight-forward, making it easily accessible for all finance professionals. It is computed simply by dividing the average annual profit gained from an investment by the initial cost of the investment and expressing the result in percentage. Accounting Rate of Return is a metric that estimates the expected rate of return on an asset or investment.

The formula to calculate the annual recurring revenue (ARR) is equal to the monthly recurring revenue (MRR) multiplied by twelve months. SmartAsset Advisors, LLC (“SmartAsset”), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. To get average investment cost, analysts take the initial book value of the investment plus the book value at the end of its life and divide that sum by two.