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| Declining Balance Depreciation Method |
The declining balance depreciation method uses the depreciable basis of an asset multiplied by a factor
based on the life of the asset. The depreciable basis of the asset is the book value of the fixed asset -- cost less accumulated depreciation. |
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The factor is the percentage of the asset that would be depreciated each year under straight line depreciation
times the accelerator. For example, an asset with a four year life would have 25% of the cost depreciated each
year. Using double declining balance or 200%, which is the most common, would mean that depreciation
expense in the first year would be twice that or 50%. So to calculate the depreciation expense each year
the depreciable basis would be multiplied by 50%. |
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Example: A copy machine is purchased for $3,217.89. The expected life is 4 years. Using double declining
balance the depreciation would be calculated as follows: |
| factor = 2 * (1/4) = 0.50 |
Year | Depreciable
Basis | Depreciation
Calculation | Depreciation
Expense | Accumulated
Depreciation |
1. | 3,217.89 | 3,217.89 * 0.5 | 1,608.95 | 1,608.94 |
2. | 1,608.94 | 1,608.94 * 0.5 | 804.47 | 2,413.41 |
3. | 804.48 | 804.48 * 0.5 | 402.24 | 2,815.65 |
4. | 402.24 | 402.24 * 0.5 | 201.12 | 3,016.77 |
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| Sum of the Years Digits |
| The first step is to sum the digits or numbers starting with the life and going back to one. For example, an asset with a life of 5 would have a sum of digits as follows: 5+ 4+ 3 +2 + 1 = 15 |
| To find the percentage for each year divide the year's digit by the sum. In the example above the percentage would be calculated as follows: |
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| Example: A conference table is purchase for 1,467.89. The expected life is 5 years. Since this is a 5 year asset the yearly factors have been calculated above. |
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Year 1 | 5 / 15 = 33.34% |
Year 2 | 4 / 15 = 26.67% |
Year 3 | 3 / 15 = 20 % |
Year 4 | 2 / 15 = 13.33 % |
Year 5 | 1/ 15 = 6.67% |
Year | Depreciation
Calculation | Depreciation
Expense |
1 | 1,467.89 * 33.34 %
| 489.4
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2 | 1,467.89 * 26.67 %
| 391.49
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3 | 1,467.89 * 20 %
| 293.58
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4 | 1,467.89 * 13.33 %
| 195.67
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5 | 1,467.89 * 6.67 %
| 97.91
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