Part 3.

Declining Balance Method

Part 4. Double Declining Balance Method
• In this method, sometimes called the constant percentage method
or the Matheson Formula, depreciates an asset at a higher rate in
the initial years than in subsequent years.
• A constant rate of depreciation is applied to an asset’s (declining)
book value each year.
• This method results in accelerated depreciation and results in higher
depreciation values in the early years of the life of an asset.
• It is appropriate for assets that require more repairs and maintenance
expenses as they get older and also for those assets which are prone
to technological obsolescence.
• It results in accelerated depreciation and is a good method to record depreciation
of assets that quickly lose their value or become obsolete like computer
equipment and other technology products.
• Due to higher depreciation in initial years, net income is reduced, which results in
tax benefits due to lower tax outflow.

• It results in lower net income during the initial years of an asset as depreciation is
higher initially.
• It is not an ideal method for those assets which don’t lose their value quickly like
equipment and machinery.
𝑫𝒏 = 𝑪𝒐 − 𝑪𝒏
This method is very similar to the declining balance method except
that the rate of depreciation k is replaced by 2/L.

𝑫𝒏 = 𝑪𝒐 − 𝑪𝒏
1. Determine the rate of depreciation, the total depreciation up to the end of the 8th year and
book value at the end of 8 years for an asset that costs Php 15, 000 new and has an estimated
scrap value of Php 2, 000 at the end of 10 years by
(a) the declining balance method and
(b) the double declining balance method.

Given: (a)Declining balance method (b)Double declining balance method

Co = 15,000
2 n
CL = 2,000 𝑘=1 −
𝐿 𝐶𝐿
=1 −
10 2,000
= 0.1825 = 18.25% 𝐶𝑛 = 𝐶𝑜 1 −
15,000 𝐿
L = 10 𝐶𝑜
2 8
n=8 𝐶8 = 15,000 1 −
10
8
𝐶8 = 15,000 1 − 0.1825 = P2,992.218817 or P2,992.22
Req’d: 𝑪𝟖 = 𝑷𝟐, 𝟓𝟏𝟔. 𝟓𝟖𝟐𝟒 𝑜𝑟 𝑷𝟐, 𝟓𝟏𝟔. 𝟓𝟖
k =? 𝐷8 = 𝐶𝑜 − 𝐶8 = 15,000 − 2,992.218817 = 𝑷𝟏𝟐, 𝟎𝟎𝟕. 𝟕𝟖
C8 = ? 𝐷 8 = 𝐶𝑜 − 𝐶8
D8 = ?
𝐷8 = 15,000 − 2,516.5824
𝐷8 = 𝑃12,483.42
Declining Balance Method Depreciation Schedule
Year Book Value(Beginning of Year) Depreciation Expense Book Value (End of Year)
d = BV * k
1 15,000 2,737.5 12,262.5
2 12,262.5 2,237.906 10,024.594
3 10,024.594 1,829.488359 8,195.105641
4 8,195.105641 1,495.606734 6,699.498907
5 6,699.498907 1,222.658505 5,476.840402
6 5,476.840402 999.5233277 4,477.317074
7 4,477.317074 817.1103204 3,660.206754
8 3,660.206754 667.9876869 2,992.219067
9 2,992.219067 546.0799341 2,446.139133
10 2,446.139133 446.4203461 2,000
Double Declining Balance Method Depreciation Schedule
Year Book Value(Beginning of Year) Depreciation Expense Book Value (End of Year)
1 15,000 3,000 12,000
2 12,000 2,400 9,600
3 9,600 1,920 7,680
4 7,680 1,536 6,144
5 6,144 1,228.8 4,915.2
6 4,915.2 983.04 3,932.16
7 3,932.16 786.432 3,145.728
8 3,145.728 629.1456 2,516.5824
9 2,516.5824 503.31648 2,013.26592
10 2,013.26592 402.653184 1,610.612736
2. A plant bought a calciner for Php 220, 000 and used it for 10 years, the life span of the equipment.
What is the book value of the calciner after 5 years of use?
• Assume a scrap value of Php 20, 000 for the straight-line method;
• Php 22, 000 scrap value for declining balance method and
• Php 20, 000 for the double-declining balance method.
(a)Straight-Line method (b)Declining balance method
Given:
Co = 220,000 𝑛(𝐶𝑂−𝐶𝐿)
Dn =
CL1 = 20,000 for straight-line 𝐿
CL2 = 22,000 for declining balance 5(220,000−20,000) 22,000 5/10
D5 = 𝐶5 = 220,000
220,000
CL3 = 20,000 for double declining balance 10
L = 10
D5 = P100,000 𝐶5 = 𝑷𝟔𝟗, 𝟓𝟕𝟎. 𝟏𝟏
n=5

Req’d: Cn = Co - Dn (c)Double Declining balance method

C5 = ? (for Straight-Line, Declining Balance 2 n
& Double Declining Balance Method) C5 = 220,000-100,000 𝐶𝑛 = 𝐶𝑜 1 −
𝐿
2 5
C5 = P120,000 𝐶5 = 220,000 1 −
10

𝐶5 = 𝑷𝟕𝟐, 𝟎𝟖𝟗. 𝟔
Construct the depreciation schedule for each method in Problem 2. (15 pts.)