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    Declining_Balance_Depreciation_Analysis

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    021CIVQazi Adnan
    problm also

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    Declining_Balance_Depreciation_Analysis

    Uploaded by

    021CIVQazi Adnan
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    problm also

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    problm also

    Copyright:

    © All Rights Reserved
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    1 views2 pages

    Declining_Balance_Depreciation_Analysis

    Uploaded by

    021CIVQazi Adnan
    problm also

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Detailed Analysis of Declining Balance Method

    The Declining Balance Method applies a fixed percentage to the book value at the start of each

    year, resulting in decreasing depreciation amounts over time. This document provides a

    step-by-step calculation of depreciation using this method for the given problem.

    Step 1: Determine Key Values


    1. Initial Cost: Rs. 2,00,000

    2. Salvage Value: Rs. 50,000

    3. Useful Life: 8 years

    4. Depreciation Rate (r):

    Using the formula:

    r = 1 - (Salvage Value / Initial Cost)^(1/n)

    r = 1 - (50,000 / 2,00,000)^(1/8) is approximately 0.1591 or 15.91%

    Step 2: Calculate Depreciation for Each Year


    Depreciation for each year is calculated using the formula:

    Depreciation = r x Book Value (Start)

    For example, for Year 1:

    Depreciation = 0.1591 x 2,00,000 = Rs. 31,820.72

    Step 3: Yearly Calculations


    The following table shows the calculations for each year:

    Year Book Value (Start) Depreciation Book Value (End)

    1 200,000 31,820.72 168,179.28

    2 168,179.28 26,757.93 141,421.36

    3 141,421.36 22,500.64 118,920.71

    4 118,920.71 18,920.71 100,000.00


    5 100,000.00 15,910.36 84,089.64

    6 84,089.64 13,378.96 70,710.68

    7 70,710.68 11,250.32 59,460.36

    8 59,460.36 9,460.36 50,000.00

    Step 4: Key Observations


    1. Accelerated Depreciation: Larger amounts are deducted in the earlier years, and smaller amounts

    in later years.

    2. Final Book Value: At the end of 8 years, the book value equals the salvage value of Rs. 50,000.

    3. Use Case: This method is suitable for assets that lose value more quickly in the early years, such

    as machinery or vehicles.

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