| # Calculating Declining Balance depreciation In the Declining Balance method, LN calculates each year's total depreciation by applying a constant percentage to the asset's net book value. The declining balance methods allocate the largest portion of an asset's cost to the early years of its useful life. It does not depreciate the asset to its salvage value. You must do it manually. Note If the asset for which you are calculating depreciation contains an averaging convention, LN adjusts the depreciation expense for the first half year, quarter, or month calculation. Double declining balance depreciation The depreciation rate for double declining balance method = Straight line depreciation rate *200 percent Example On April 1, 2011, Company A purchased an equipment at the cost of $140,000. This equipment is estimated to have 5 year useful life. At the end of the 5th year, the salvage value (residual value) will be $20,000. Company A recognizes depreciation to the nearest whole month. Calculate the depreciation expenses for 2011, 2012 and 2013 using double declining balance depreciation method. Asset Life = 5 years. Hence, the straight line depreciation rate = 1/5 = 20% per year. Depreciation rate for double declining balance method = 20% * 200% = 20% * 2 = 40% per year. The depreciation amounts for the asset are calculated as follows: Year 2011 Depreciation = $140,000 * 40% * 9/12 = $42,000. Year 2012 Depreciation = ($140,000 - $42,000) * 40% * 12/12 = $39,200 . Year 2013 Depreciation = ($140,000 - $42,000 - $39,200) * 40% * 12/12 = $23,520 Year 2014 Depreciation = ($140,000 - $42,000 - $39,200 - $23,520) * 40% * 12/12 = $14,112 Year 2015 Depreciation = ($140,000 - $42,000 - $39,200 - $23,520 - $14,112 ) * 40% * 12/12 = $8,467. Note The depreciation for the Year 2015 must be taken as $1,168 but not $8,467, in order to maintain the book value same as the salvage value. $21,168 - $20,000 = $1,168 (At this point, depreciation stops.)
A-Year | B- Book Value at the beginning | C-Depreciation Rate | D- Depreciation Amount (D=B*C*Number of months /12) | E-Book Value at the year-end
--- | --- | --- | --- | ---
2011 | $140,000 | 40% | $42,000 | $98,000
2012 | $98,000 | 40% | $39,200 | $58,800
2013 | $58,000 | 40% | $23,520 | $35,280
2014 | $35,280 | 40% | $14,112 | $21,168
2015 | $21,168 | 40% | $1,168 | $20,000
150% declining balance depreciation The depreciation rate for 150% declining balance method = Straight line depreciation rate *150 percent Example On April 1, 2011, Company A purchased an equipment at the cost of $140,000. This equipment is estimated to have 5 year useful life. At the end of the 5th year, the salvage value (residual value) will be $20,000. Company A recognizes depreciation to the nearest whole month. Calculate the depreciation expenses for 2011, 2012 and 2013 using 150 percent declining balance depreciation method. Asset Life = 5 years. Hence, the straight line depreciation rate = 1/5 = 20% per year. Depreciation rate for 150 percent declining balance method = 20% * 150% = 20% * 1.5 = 30% per year. The depreciation amounts are calculated as follows: Year 2011 Depreciation = $140,000 * 30% * 9/12 = $31,500. Year 2012 Depreciation = ($140,000 - $31,500) * 30% * 12/12 = $32,550 . Year 2013 Depreciation = ($140,000 - $31,500 - $32,550) * 30% * 12/12 = $22,785 Year 2014 Depreciation = ($140,000 - $31,500 - $32,550 - $22,785) * 30% * 12/12 = $15,950 Year 2015 Depreciation = ($140,000 - $31,500 - $32,550 - $22,785 - $15,950 )*30% *12/12 = $11,165. Year 2016 Depreciation = ($140,000 - $31,500 - $32,550 - $22,785 - $15,950 -$11,165 )*30% *12/12 = $7,815. Note Depreciation for the Year 2016 must be taken as $6,051 but not $7,815, in order to maintain the book value same as the salvage value. $26,051 - $20,000 = $6,051 (At this point, depreciation stops.)
A-Year | B- Book Value at the beginning | C-Depreciation Rate | D- Depreciation Amount (D=B*C*Number of months /12) | E-Book Value at the year-end
--- | --- | --- | --- | ---
2011 | $140,000 | 30% | $31,500 | $108,500
2012 | $108,500 | 30% | $32,550 | $75,950
2013 | $75,950 | 30% | $22,785 | $53,165
2014 | $53,165 | 30% | $15,950 | $37,216
2015 | $37,216 | 30% | $11,165 | $26,051
2016 | $26,051 | 30% | $6,051 | $20,000