Related topics

Declining-Balance (Methods DB and DC)

Declining-Balance, Half-Year (Methods DH and DI)

Declining-Balance, Modified Half-Year (Methods DD and DE)

Default Method Field

Declining-Balance Methods

Declining-balance depreciation is a method that depreciates an asset at a higher rate in the earlier years of the asset's life than straight-line depreciation. It applies only to tangible assets with a useful life equal to or greater than 3 years. The declining-balance methods are approved under Generally Accepted Accounting Principles (GAAP). The declining-balance rates are allowed to a maximum of twice the straight-line rate (200%). When you enter a declining-balance method, you select the rate you want to apply.

Using declining-balance depreciation for each year of an asset's life never completely depreciates the asset. Therefore, you can opt to switch from declining-balance depreciation to straight-line depreciation once during the life of an asset. This will allow you to completely write the asset off by depreciating it fully.

The application provides six standard declining-balance methods. When paired with the four possible depreciation rates (125%, 150%, 175%, and 200%), you have 24 choices.

Each method is different based on the percentage used, the averaging convention used, and whether it will switch from declining-balance to straight-line at the optimal point. The optimal point for switching to straight-line depreciation is when the deductions allowed by the straight-line method equal or exceed the deductions allowed by the declining-balance method. When the change to straight-line is made, the unrecovered basis of the asset is spread over the remaining estimated life, ensuring that the entire amount is depreciated. When straight-line depreciation is applied in this way, it is often called remaining value over remaining life depreciation. The methods are as follows:

DB

Declining-balance, midmonth convention, switch to SL when optimal.

DC

Declining-balance, midmonth convention, no switch to SL.

DD

Declining-balance, modified half-year, switch to SL when optimal.

DE

Declining-balance, modified half-year, no switch to SL.

DH

Declining-balance, half-year, switch to SL when optimal.

DI

Declining-balance, half-year, no switch to SL.

The system supports the following averaging conventions when using a declining-balance method:

  • Regular declining balance (midmonth convention)
  • Half-year
  • Modified half-year

If you are using a monthly accounting cycle, the system applies these conventions as if they were month-based. If you are using a 52/53-week accounting cycle, the system applies them as if they were week-based.