Accounting for Plant Assets and Depreciation Chapter 18, Section 5 Declining-Balance Method of Depreciation.

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Accounting for Plant Assets and Depreciation Chapter 18, Section 5 Declining-Balance Method of Depreciation

Double Declining-Balance Method Straight-line method charges an equal amount of depreciation each year. Some plant assets may depreciate more in the early years than in the later years. Declining-balance method of depreciation ▫Multiplies the book value by a constant depreciation rate ▫To calculate the double declining-balance rate 100% ÷ Est. Years of Useful Life x 2

Calculating Depreciation Using the Double Declining-Balance Method Calculate the double declining-balance rate. 100% ÷ Years of Useful Life x 2 2.Determine the annual depreciation expense. Beginning Book Value x Declining-Balance Rate 3.Determine the ending book value. Beginning Book Value – Annual Depreciation 4.Transfer the ending book value to the beginning book value for the following year.

Calculating the Last Year’s Depreciation Expense 23 1.Transfer the ending book value from Year 4 to the beginning book value of Year 5. 2.Subtract the salvage value from the beginning book value to determine the depreciation expense for the last year. 3.Verify that the ending book value is equal to the salvage value. 1

Comparison of Two Methods of Depreciation

P ROBLEMS Work Together 18-5 (text pg. 554) On Your Own 18-5 (text pg. 554) Application Problem 18-6 (text pg. 557) Mastery Problem 18-7 (text pg. 557)