Difference between revisions of "Depreciation - Double Declining Balance Method"
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==Illustrations== | ==Illustrations== | ||
===Assumptions=== | ===Assumptions=== | ||
− | *A business purchased a machine for $ | + | *A business purchased a machine for $100,000, |
− | *The estimated useful life is | + | *The estimated useful life is 5 years, and |
− | *The machine has a salvage value of $ | + | *The machine has a salvage value of $10,000 |
− | The amount to be depreciated would be $ | + | The amount to be depreciated would be $90,000 less the salvage value of $10,000 for a total depreciation amount of $90,000 |
===Straight Line=== | ===Straight Line=== | ||
− | Under Straight line depreciation method the annual depreciation would be $ | + | Under Straight line depreciation method the annual depreciation would be $18,000. The calculation is $90,000 (Amount to be depreciated) divided by 5 (years). The table below shows the depreciation schedule. |
{| class="wikitable" | {| class="wikitable" | ||
|- | |- | ||
− | ! Year !! Depreciation Amount !! Accumulated Depreciation | + | ! Year !! Depreciation Amount !! Accumulated Depreciation!!Net Book Value |
|- | |- | ||
− | | 1 || $ | + | | 1 || $18,000 ||$18,000||$82,000 |
|- | |- | ||
− | | 2 || $ | + | | 2 || $18,000 || $36,000||$64,000 |
|- | |- | ||
− | | 3 || $ | + | | 3 || $18,000 || $54,000|| $46,000 |
|- | |- | ||
− | | 4 || $ | + | | 4 || $18,000 || $72,000||$28,000 |
|- | |- | ||
− | | 5 || $ | + | | 5 || $18,000 || $90,000||$10,000 |
− | + | ||
− | + | ||
− | + | ||
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|} | |} | ||
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{| class="wikitable" | {| class="wikitable" | ||
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− | ! Year !! | + | ! Year !! Net Book Value, Beg. !! Depreciation !! Accum. Depr. !! Net Book Value, End |
− | + | ||
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|- | |- | ||
− | | | + | | 1 || $100,000 || $40,000|| $40,000 ||$60,000 |
|- | |- | ||
− | | | + | | 2 || $60,000 || $24,000 ||$64,000 || $36,000 |
|- | |- | ||
− | | | + | | 3 || $36,000 || $14,400 || $78,400 || $21,600 |
|- | |- | ||
− | | | + | | 4 || $21,600 || $8,640 || $87,040 || $12,960 |
|- | |- | ||
− | | | + | | 5 || $12,960 || $ 2,960 || $90,000 || $10,000 |
|} | |} | ||
Latest revision as of 10:41, 30 May 2014
Contents |
Overview
Double Declining Balance Method of depreciation is one of two common methods a business uses to account for the expense of a long-lived asset. The double declining balance depreciation method is an accelerated depreciation method that counts twice as much of the asset’s book value each year as an expense compared to straight-line depreciation.
The formula is:
Depreciation for a period=2*straight line depreciation percent*[(book value at beginning of period-salvage value)-accumulated depreciation)].
Illustrations
Assumptions
- A business purchased a machine for $100,000,
- The estimated useful life is 5 years, and
- The machine has a salvage value of $10,000
The amount to be depreciated would be $90,000 less the salvage value of $10,000 for a total depreciation amount of $90,000
Straight Line
Under Straight line depreciation method the annual depreciation would be $18,000. The calculation is $90,000 (Amount to be depreciated) divided by 5 (years). The table below shows the depreciation schedule.
Year | Depreciation Amount | Accumulated Depreciation | Net Book Value |
---|---|---|---|
1 | $18,000 | $18,000 | $82,000 |
2 | $18,000 | $36,000 | $64,000 |
3 | $18,000 | $54,000 | $46,000 |
4 | $18,000 | $72,000 | $28,000 |
5 | $18,000 | $90,000 | $10,000 |
Double Declining
Year | Net Book Value, Beg. | Depreciation | Accum. Depr. | Net Book Value, End |
---|---|---|---|---|
1 | $100,000 | $40,000 | $40,000 | $60,000 |
2 | $60,000 | $24,000 | $64,000 | $36,000 |
3 | $36,000 | $14,400 | $78,400 | $21,600 |
4 | $21,600 | $8,640 | $87,040 | $12,960 |
5 | $12,960 | $ 2,960 | $90,000 | $10,000 |