Depreciation Expense
Accumulated Depreciation
To record monthly depreciation
One of the two accelerated depreciation methods is the decreasing balance method, which has a depreciation rate that is roughly multiple the rate of the straight-line method. Instead of using the standard depreciation rate, the double-declining balance technique is a kind of declining balance method.
With this approach, the Book Value at the start of each period is multiplied by a set Depreciation Rate that is equal to a factor of 2, or 200% of the straight-line depreciation rate.
However, if the book value would drop below the salvage value, the last period can be changed so that it finishes at the salvage value. The salvage value is not taken into account in the double decreasing balance calculation when determining the depreciation of each period.
An asset for a firm will cost $1,750,000, have a life of 10, and have a salvage value of $10,000 after 10 years. To determine the depreciation expense for a given period, we multiply the book value at the commencement of the period by 200% of the straight-line depreciation, or a factor of 2.
The straight-line depreciation percent is 100% multiplied by ten years, or 10% annually.
Depreciation Rate: 2 times 10% each year equals 20%
Depreciation for a Period is equal to 20% of the Book Value at the commencement of the period. For Period 1, this equals $350,000.
Depreciation is calculated as 20% x ($1,750,000 - Accumulated Depreciation) for Periods 2 and upwards.
For Period 2, this equals $280,000.
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