Accounting 3

1
Accounting 3

• Chapter 21
• Section 5

2
Declining Balance Method of Depreciation

• Declining-Balance Method of Depreciation
  Multiplying the book value of an asset by a
  constant percentage rate at the end of each
  fiscal period.
• With straight-line depreciation the same amount
  of depreciation is expensed each fiscal period.
  In declining-balance, the same percentage rate is
  expensed each fiscal period.
• The declining-balance method is used with some
  assets because they depreciate more in the early
  years of useful life than they do in later years.
  For example, cars depreciate more in the first
  years than in later years.

3
Declining Balance Depreciation

• The DB depreciation rate is a multiple of the
  straight-line rate. Many businesses use a rate
  that is two times the SL rate.
• This is referred to as the double declining
  balance method.

4
Calculating Depreciation Using the
Double-Declining Balance Method

• Estimated Depreciation Expense / Years of
  Estimated Useful Life Straight-Line Rate of
  Depreciation
• Straight-Line Rate x 2 Double Declining-Balance
  Rate of Depreciation
• Example of asset with 5 years of life
• (EDE) 100 / (YEUL) 5 (SLR) 20
• (SLR) 20 x 2 (DDBR) 40

5
Calculating the Last Years Depreciation Expense

• A plant asset is never depreciated below its
  estimated salvage value.
• So in its last year of useful life, only enough
  depreciation expense is recorded to reduce the
  book value to the assets salvage value.
• To do this, you subtract the salvage value from
  the beginning book value of that year. The
  difference is the depreciation expense for the
  last year.

6
Work Together p. 565next three slides,
assignment on last slide
Computer
2,300.00
Declining-Balance
200.00
4 years
2007
2,300.00
50
1,150.00
1,150.00
2008
50
575.00
1,150.00
575.00
2009
50
575.00
287.50
287.50
2010
287.50
87.50
200.00
7
Cash Register
1,200.00
Declining-Balance
100.00
5 years
2007
1,200.00
40
480.00
720.00
2008
720.00
40
288.00
432.00
2009
40
432.00
172.80
259.20
2010
40
259.20
103.68
155.52
2011
155.52
55.52
100.00
8
Clothing Rack
500.00
Declining-Balance
50.00
5 years
2007
500.00
40
200.00
300.00
2008
40
300.00
120.00
180.00
2009
40
180.00
72.00
108.00
2010
40
108.00
43.20
64.80
2011
64.80
14.80
50.00
9
Assignment

• Do Application 21-6 by hand.
• Do Mastery Problem on the computer. Print off all
  journals, ledgers, and plant asset lists used.
  Hint You must enter all information for
  depreciation tables to work.
• Turn both of these assignments into Mrs.
  Middleton.
• Move on to Chapter 22.