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Declining Balance Depreciation The declining balance method is an accelerated depreciation method. Depreciation is calculated by multiplying a constant depreciation rate by the book value.
Declining Balance Depreciation The declining balance method is an accelerated depreciation method. Depreciation is calculated by multiplying a constant depreciation rate by the book value. Because the book value decreases each period, so does the depreciation-hence the name, the declining balance method. The first step is to calculate the declining balance depreciation rate The concept is that the declining-balance rate is some multiple (m) of the straight-line rate. The formula is shown below. Depreciation Rate m) x Straight-Line Rate At the end of each period, the declining balance rate is applied to the current book value of the asset to determine the depreciation for the period. The depreciation is recorded with a debit to Depreciation Expense and a credit to Accumulated Depreciation. Note: The asset must be fully depreciated by the end of its useful life. The balance in Accumulated Depreciation should equal depreciable cost, and book value should equal the residual value. Therefore, the final year's depreciation often needs to be calculated by comparing the accumulated depreciation to the depreciable cost. (See the example below.) Click here to view an example of the declining-balance method. 1. Determine the depreciation rate 2. Calculate depreciation for year 1 3. Determine the book value for year 1 4. Calculate depreciation for year 2 5. Determine the book value for year 2 Calculate depreciation for year 3 6. 7. Determine the book value for year 3 8. Calculate depreciation for year 4 9. Determine the book value for year 4 10. Calculate depreciation for year 5 11. Determine the book value for year 5 12. Consider these concepts
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