There are two ways that businesses can account for the expense of their long-lived assets. The first one is the straight-line depreciation method. It is the most commonly used and straightforward depreciation method. This involves reducing the value of plant, property, and equipment to match its use as well as its wear and tear over time. The second is the double-declining depreciation method. This involves accelerated depreciation and uses the Book Value at the beginning of each period, multiplied by a fixed Depreciation Rate. You can easily compute for this value using this double declining depreciation calculator, or you can compute it manually.
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How to use the double declining depreciation calculator?
Calculating the value of the double declining depreciation is a lot easier using this double declining depreciation calculator. This is a convenient tool which you can also use after you’ve manually calculated the value using the double declining depreciation formula. Here are the steps:
- First, input the monetary values which are the Asset Cost and its Salvage Value.
- Then input the Useful Life or the number of years you can get out of your asset.
- Choose the Starting Month from the drop-down menu then input the year.
- Finally, select the Convention from the drop-down menu whether it’s Full-Month, Mid-Month, Mid-Quarter or Mid-Year.
- After inputting all of the information, the double declining depreciation calculator will automatically generate the Book Value Year Start, Depreciation Percent, Depreciation Expense, Accumulated Depreciation, and the Book Value Year End for four years. Also, you’ll get a bar graph which represents the values the online calculator has generated.
How do you calculate double declining depreciation?
The first things to know when implementing the double declining depreciation formula are the asset’s useful life and purchase price. The Purchase Price refers to the original value of your asset or the depreciable cost. The Useful Life refers to the expected time that the asset will be productive for its expected purpose. Here are the steps for the double declining balance method:
- Divide 100% by the number of years in your asset’s useful life. The quotient you get is the SLD rate.
- Multiply the value you get by 2. This will be your DDD rate, and the depreciation will continue until the value of the asset has declined to the salvage value or the value of the asset at the end of its useful life. This is also known as the scrap value or the residual value.
Here are some formulas to keep in mind:
- SLD Rate = Depreciation Expense / Depreciable Base
- DDD Rate = SLD Rate * 2
What is the formula for double declining balance depreciation?
Depreciation rates between the two methods of calculating depreciation are similar except that the DDD Rate is twice the value of the SLD rate. In the depreciation of the asset for each period, the salvage value is not considered when doing calculations for DDD balance.
If, however, the asset’s book value becomes lesser than the salvage value, you can adjust the final value so that the asset will end at its targeted salvage value. If the DDD method doesn’t completely depreciate a particular asset at the end of its useful life, you can use another computation called the variable declining balance method instead:
- SLD Percent = 100% / Useful Life
- DDD Rate = SLD Percent * 2
- Depreciation for a Period = Depreciation Rate * Book Value at the Beginning of the Period
If the assent’s first year isn’t a complete 12 months but just a specific number of months, calculate the first and the last years as follows:
- First Year Depreciation Rate = M / 12 * Depreciation Rate
- Last Year Depreciation Rate = (12-M) / 12 * Depreciation Rate
How is declining balance depreciation calculated?
As its name implies, the DDD balance method is one that involves a double depreciation rate. There are two types of accelerated depreciation methods, and both involve a multiple of the SLD balance method. The depreciation rates in DDD balance methods could either be 150% or 200% or even 250% of the SLD method.
If the depreciation rate of a DDD balance method is a multiple doubling of the SLD method, then the most effective one is the DDD balance method. Throughout the depreciation process, the DDD rate stays constant, and you apply it to the lowering book value for every depreciation period. If you want to perform the calculations manually instead of using the double declining balance calculator, use this double declining balance formula:
Depreciation Expense = Book Value at the beginning of the year * Estimated useful life * 2
There are 3 things you need to calculate depreciation using the DDD balance method:
- The cost basis of your asset.
- The useful life of your asset.
- The book value of your asset at the start of the year.
According to the Generally Accepted Accounting Principles or GAAP for public companies, “any expenses incurred are recorded in the same period as the revenue that is earned as a result of those expenses.: This means that if a business establishment buys an expensive asset that will be used for a long period of time, it will not deduct the entire purchase price as a business expense in that year of purchase. Rather, it can deduct the price over several years.
How do I calculate depreciation percentage?
Any asset when subjected to normal use will get subjected to new technology, wear and tear, or unfavorable market conditions, and will result in a reduction to its value. This is what’s known as depreciation. Vehicles, plant machinery, buildings, and more will not last forever and are expected to depreciate until they have reached their salvage value.
The most commonly used method of calculating depreciation is using the SLD method. The following formula that’s derived from the SLD method is a useful and simple tool in calculating depreciation:
Annual Depreciation rate = (Cost of Asset – Net Scrap Value) / useful life.
