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Neftalie Saget

06-07-11. Neftalie Saget . DOUBLE DECLINING DEPRECIATION.

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Neftalie Saget

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  1. 06-07-11 Neftalie Saget

  2. DOUBLE DECLINING DEPRECIATION • Double –declining depreciation, defined as an accelerated method of depreciation, is a GAAP approved method for discounting the value od equipment as it ages. It depreciates a tangible assetusing twice the straight-ligne depreciation rate

  3. Double Declining Depreciation: Explanation • Double declining depreciation ,explained as one of the most common methods to depreciate tools, is everywhere .The idea is that the asset’s value declines more steeply in the early years of usage. The result is that the depreciation expenses are larger in beginning and get smaller over time. • Companies often use this method of depreciation for tax purpose. Because the depreciation expenses are larger in the early periods of the asset’s useful life, the tax savings are greater in the beginning of the depreciation cycle and the tax benefits come sooner.

  4. Double Declining Depreciation: Equation To implement the double declining depreciation equation for asset, you need to know the asset’s purchase price, salvage value and useful life. The salvage value is the amount the asset is worth at the end of its useful life. The depreciable base is the purchase price minus the salvage value. Depreciation continues until the asset value declines to its salvage value. First, calculate the depreciable base and the depreciation expense. Next, calculate the straight-line depreciation rate. Then multiply the straight-line depreciation rate by two. Once you have the double-declining depreciation rate, you must create a depreciation schedule, as shown below. Depreciation Base = Purchase Price – Salvage Value Depreciation Expense = Depreciable Base / Useful life Straight-line Depreciation Rate = Depreciation Expense / Depreciable Base Double –declining Depreciation Rate = Straight-line Depreciation Rate x 2

  5. Double Declining Depreciation :Calculation • Example: Purchase price is $1,000; Salvage value is $ 100; and useful life is 5 years • Depreciable Base = $ 1,000 - $ 100 = $900 • Depreciation Expense = 4900/5 = 180 • Double Declining Depreciation Rate = $ 180 / $900 = 20%

  6. Questions • What is the definition of double declining Depreciation? - An accelerated method of depreciation 2. What is the equation to determine the double declining depreciation? - Double-declining Depreciation Rate = Straight-line Depreciation Rate x 2 3. How would you explain this method ? - It is one of the most common method to depreciate tools and it is everywhere. 4. How do you calculate Double declining Depreciation ? - Double Declining Depreciation Rate = Depreciation Expense / Depreciable Base 5. Based on the research, what can you conclude about the straight line method in comparison to the accelerated double decline method?

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