Scribd Logo
Upload

Welcome to Scribd!

  • 307 views

    Declining Balance Method

    Uploaded by

    Cyrus Madera
    The declining balance method is an accelerated depreciation method where the depreciation expense declines each year over the asset's life. Under this method, depreciation is calculated as a percentage of the book value from the previous year. The double declining balance method is similar but uses twice the standard depreciation rate, resulting in faster depreciation in early years. Examples are provided to demonstrate calculating depreciation expense and book value under each method over several years for assets with initial costs, salvage values, and estimated lives.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Declining Balance Method

    Uploaded by

    Cyrus Madera
    307 views4 pages
    The declining balance method is an accelerated depreciation method where the depreciation expense declines each year over the asset's life. Under this method, depreciation is calculated as a percentage of the book value from the previous year. The double declining balance method is similar but uses twice the standard depreciation rate, resulting in faster depreciation in early years. Examples are provided to demonstrate calculating depreciation expense and book value under each method over several years for assets with initial costs, salvage values, and estimated lives.

    Original Title

    DECLINING-BALANCE-METHOD

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The declining balance method is an accelerated depreciation method where the depreciation expense declines each year over the asset's life. Under this method, depreciation is calculated as a percentage of the book value from the previous year. The double declining balance method is similar but uses twice the standard depreciation rate, resulting in faster depreciation in early years. Examples are provided to demonstrate calculating depreciation expense and book value under each method over several years for assets with initial costs, salvage values, and estimated lives.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    307 views4 pages

    Declining Balance Method

    Uploaded by

    Cyrus Madera
    The declining balance method is an accelerated depreciation method where the depreciation expense declines each year over the asset's life. Under this method, depreciation is calculated as a percentage of the book value from the previous year. The double declining balance method is similar but uses twice the standard depreciation rate, resulting in faster depreciation in early years. Examples are provided to demonstrate calculating depreciation expense and book value under each method over several years for assets with initial costs, salvage values, and estimated lives.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    DECLINING BALANCE METHOD

    - In this method, sometimes called the Constant Percentage Method or Matheson


    Formula. It is an accelerated depreciation method in which the depreciation expense
    declines with age of the fixed asset.

    Formula:
    Where:
    𝒅 = 𝒊 𝑭𝑪 (𝟏 − 𝒊 )𝒓−𝟏 d = Depreciation per year
    𝒓
    𝑺𝑽 𝒏 𝑩𝑽𝒓 = Book Value
    𝑩𝑽𝒓 = 𝑭𝑪 (𝟏 − 𝒊)𝒓 𝑜𝑟 𝑩𝑽𝒓 = 𝑭𝑪 ( )
    𝑭𝑪 FC = First Cost
    𝑺𝑽 = 𝑭𝑪 (𝟏 − 𝒊 )𝒏
    SV = Salvage Value
    𝒏 𝑺𝑽 i = Rate of depreciation
    𝒊=𝟏− √
    𝑭𝑪 𝑫𝒓 = Accumulated depreciation at a
    certain period (r)
    n = Economic Life

    DOUBLE DECLINING BALANCE METHOD


    - This method is very similar to the Declining balance method except that the rate of of
    depreciation (i) is doubled.

    Example 1:
    A certain type of machine loses 10% of its value each year. The machine costs ₱ 2,000 originally.
    Make out a schedule showing the yearly depreciation, the total depreciation and the book value
    at the end of each year for 5 years.
    DECLINING BALANCE METHOD
    Given:
    FC = ₱ 2,000
    i = 10%
    n = 5 years

    Book Value at Depreciation during the Total Depreciation at the Book Value ate the end of
    Year
    Beginning of year year (10%) end of the year the year

    1 ₱ 2,000 2,000 (0.1) = ₱ 200 = ₱ 200 2,000 – 200 = ₱ 1,800


    2 ₱ 1,800 1,800 (0.1) = ₱ 180 180 + 200 = ₱ 380 2000 – 380 = ₱ 1,620
    3 ₱ 1,620 1,620 (0.1) = ₱ 162 162 + 380 = ₱ 542 2,000 – 542 = ₱ 1,458
    4 ₱ 1,458 1,458 (0.1) = ₱ 145.8 145. 8 + 542 = ₱ 687.8 2,000 – 687.8 = ₱ 1,312.20
    5 ₱ 1,312.20 1,312. 20 (0.1) = ₱ 131.22 131.22 + 687.8 = ₱ 819.02 2,000 – 819.02 = ₱ 1,180.98

    DOUBLE DECLINING BALANCE METHOD


    Given:
    FC = ₱ 2,000
    i = 10% (2) = 20%
    n = 5 years

    Book Value at Depreciation during the Total Depreciation at the Book Value ate the end
    Year
    Beginning of year year (20%) end of the year of the year

    1 ₱ 2,000 2,000 (0.2) = ₱ 400 = ₱ 400 2,000 – 400 = ₱ 1,600


    2 ₱ 1,600 1,600 (0.2) = ₱ 320 320 + 400 = ₱ 720 2000 – 720 = ₱ 1,280
    3 ₱ 1,280 1,280 (0.2) = ₱ 256 256 + 720 = ₱ 976 2,000 – 976 = ₱ 1,024
    4 ₱ 1,024 1,024 (0.2) = ₱ 204.8 204. 8 + 976 = ₱ 1180.8 2,000 – 1180.8 = ₱ 819.2
    5 ₱ 819.2 819.2 (0.2) = ₱ 163.84 163.84 + 1180.8 = ₱ 1344.64 2,000 –1344.64 = c 655.36
    Example 2:
    Determine the rate of depreciation, the total depreciation up to the end of the 8th year, and the
    book value at the end of 8 years for an asset that costs ₱ 15,000 new and has an estimated scrap
    value of ₱ 2,000 at the end of 10 years by (a) the declining balance method and (b) the double
    declining balance method.
    Given:
    FC = 15,000 SV = 2,000 n = 10 r=8
    a. Declining Balance Method b. Double Declining Balance Method

    2
    𝑆𝑉𝑛 𝑖=
    𝑖 =1− √ 𝑛
    𝐹𝐶 2
    𝑖=
    10
    10 2,000 𝑖 = 0.2 𝑜𝑟 20%
    𝑖 =1− √
    15,000
    𝑖 = 0.1825
    𝒊 = 𝟏𝟖. 𝟐𝟓% 𝐵𝑉𝑟 = 𝐹𝐶 (1 − 𝑖 )𝑟
    2 8
    𝐵𝑉8 = 15,000 (1 − )
    10
    𝐵𝑉𝑟 = 𝐹𝐶 (1 − 𝑖 )𝑟
    𝐵𝑉8 = 15,000 (1 − 0.1825)8 𝑩𝑽𝟖 = ₱ 𝟐, 𝟓𝟏𝟕
    𝑩𝑽𝟖 = ₱ 𝟐, 𝟗𝟗𝟐

    𝐷𝑟 = 𝐹𝐶 − 𝐵𝑉𝑟
    𝐷𝑟 = 𝐹𝐶 − 𝐵𝑉𝑟 𝐷8 = 15,000 − 2,517
    𝐷8 = 15,000 − 2,992 𝑫𝟖 = ₱ 𝟏𝟐, 𝟒𝟖𝟑
    𝑫𝟖 = ₱ 𝟏𝟐, 𝟎𝟎𝟖
    Example 3:
    A plant bought a calciner for ₱ 220,000 and used it for 10 years, the life span of the equipment.
    What is the book value of the calciner after 5 years of use? Assume a scrap value of ₱ 22,000 for
    declining balance method and ₱ 20,000 for the double declining balance method.

    Given: Given:
    FC = 220,000 SV = 22,000 FC = 220,000 SV = 20,000
    n = 10 r=5 n = 10 r=5

    a. Declining Balance Method b. Double Declining Balance Method


    𝑟
    𝑆𝑉 𝑛 2 𝑟
    𝐵𝑉𝑟 = 𝐹𝐶 ( ) 𝐵𝑉𝑟 = 𝐹𝐶 (1 − )
    𝐹𝐶 𝑛
    5
    22,000 10 2 5
    𝐵𝑉5 = 220,000 ( ) 𝐵𝑉5 = 220,000 (1 − )
    220,000 10
    𝑩𝑽𝟓 = ₱ 𝟔𝟗, 𝟓𝟕𝟎
    𝑩𝑽𝟓 = ₱ 𝟕𝟐, 𝟎𝟖𝟗. 𝟔

    You might also like