Decreasing balance depreciation method: formula. We calculate the depreciation of fixed assets using the reducing balance method: the pros and cons of the method The declining balance method determines the amount of depreciation

The reducing balance method is one of the methods for calculating the amount of depreciation, which can be applied to objects of both fixed assets (PP) and intangible assets (IA). How to calculate depreciation using the reducing balance method, we will show in our consultation.

Decreasing balance method: formula for OS

For the method of declining balance of depreciation, we give a formula that applies to fixed assets and allows you to find the monthly amount of depreciation (A M) (clause 19 PBU 6/01):

A M \u003d O G / SPI * K / 12

where О Г - the residual value of the fixed asset at the beginning of the year;

SPI - useful life of fixed assets in years;

K - coefficient not higher than 3, established by the organization.

An example of calculating the depreciation of fixed assets using the reducing balance method

Consider the calculation of depreciation using the reducing balance method using an example:

On July 21, 2017, the Organization took into account an item of fixed assets with an initial cost of 135,000 rubles. The useful life is 6 years. Acceleration factor - 3. From 08/01/2017, the organization began accruing depreciation on the asset.

We will show the calculation of depreciation using the reducing balance method in the table:

Period for which depreciation is calculated	Residual value at the beginning of the year (rub.)	Residual value calculation	Depreciation amount per month (rub.)	Calculating the monthly depreciation amount	Amount of depreciation for the period
08.2017 - 12.2017	135 000,00	—	5 625,00	135 000,00 / 6 * 3 /12	28 125,00
01.2018-12.2018	106 875,00	135 000,00 - 28 125,00	4 453,13	106 875,00 / 6 * 3 /12	53 437,56
01.2019-12.2019	53 437,44	106 875,00 - 53 437,56	2 226,56	53 437,44 / 6 * 3 /12	26 718,72
01.2020-12.2020	26 718,72	53 437,44 — 26 718,72	1 113,28	26 718,72 / 6 * 3 /12	13 359,36
01.2021-12.2021	13 359,36	26 718,72- 13 359,36	556,64	13 359,36 / 6 * 3 /12	6 679,68
01.2022-12.2022	6 679,68	13 359,36 - 6 679,68	278,32	6 679,68 / 6 * 3 /12	3 339,84
01.2023-07.2023	3 339,84	6 679,66 - 3 339,84	139,16	3 339,84 / 6 * 3 /12	974,12
Total:	—	—	—	—	132 634,28

Considering that at the end of the JFS, a part of the initial cost of the fixed asset in the amount of 2,365.72 remained unwritten, the organization can:

or include it as a lump sum in the depreciation recognized in August 2023;
or increase the monthly depreciation amount from January 2023 by 2,365.72/7;
or depreciate the object until its full repayment, continuing to recognize monthly expenses 139.16 rubles. from August 2023

The accounting procedure for such differences that arise when using the reducing balance method must be fixed in.

Declining balance depreciation: formula for intangible assets

How to calculate depreciation using the diminishing balance method for intangible assets? When determining the monthly depreciation amount (A M), the following formula is used (clause 29 of PBU 14/2007):

A M \u003d O M * K / SPI O

where O M is the residual value of the intangible asset at the beginning of the month;

K - coefficient not higher than 3, established by the organization;

SPI O - the useful life remaining at the beginning of the month for which depreciation is considered.

Recall the differences in the application of this method for OS and NMA:

the residual value of an intangible asset is taken at the beginning of each month for which depreciation is calculated, and not at the beginning of the year;
the useful life is applied remaining at the beginning of each month, and in months.

The diminishing balance method can be used in relation to any individual object (except goodwill), and not only to groups of intangible assets (clauses 28, 44 PBU 14/2007).

Declining balance depreciation: an example for intangible assets

Consider for intangible assets the method of declining depreciation balance using an example.

To compare the data obtained with a similar method for the OS, we present the same initial data.

On July 21, 2017, the Organization took into account an object of intangible assets with an initial cost of 135,000 rubles. The useful life is 6 years. Acceleration factor - 3. From 08/01/2017, the organization began accruing depreciation on the intangible asset object.

You can see the depreciation calculation. The calculation data show that the cost of intangible assets was amortized before the expiration of the FIA.

All methods of depreciation of fixed assets are divided into linear and non-linear. The linear method of depreciation was discussed in detail in. Here we dwell on the non-linear calculation method - the diminishing balance method. Using this method, accelerated depreciation of fixed assets is carried out. What is the benefit of this payment method? In what cases is it best to use it? Below is an example of calculating depreciation charges using the accelerated method.

In contrast to the straight-line method of calculation, depreciation is calculated using the reducing balance method, the residual value of the object is taken. The residual value is calculated by subtracting the accrued depreciation from the initial (or replacement) cost of the object. That is, the residual value is equal to the difference between the values \u200b\u200bof the debit of account 01 and the credit of account 02.

In addition, this method uses an acceleration factor that the organization sets itself. This coefficient is designed to accelerate the write-off of the value of the object through depreciation and, accordingly, the return of funds invested in the acquisition of fixed assets.

Here we find out the existing depreciation methods for fixed assets, as well as calculation formulas. We will analyze each method in detail and give an example of calculation for clarity.

All existing methods of depreciation are divided into linear and non-linear, in total there are four of them in accounting. The organization chooses a convenient method for itself and uses it to write off depreciation.

Methods for calculating depreciation of fixed assets

Straight-line method of depreciation of fixed assets

The most common way. With this method, depreciation is charged in equal installments over the entire life of the asset. For the calculation, the initial cost is taken, which is the sum of all costs incurred in connection with the acquisition of the object. If the object was revalued, then the replacement cost is taken for calculation.

Formula for calculating the straight-line method of depreciation of fixed assets

A \u003d Cost of fixed assets * Depreciation rate / 100%

Example of calculating depreciation using the straight-line method

Declining balance method

This is an accelerated method of calculating depreciation, why it is good and when it is convenient to use it, read the article devoted to this method “Declining balance calculation of depreciation”. The calculation is based on data on the residual value of the object.

Formula for calculating the declining balance method of depreciation

With this method, the annual depreciation amount is calculated using the formula:

A \u003d Residual value * Depreciation rate * Acceleration factor / 100%,

Residual cost - initial minus accrued depreciation.

Norm A.=100% / useful life.

The acceleration factor is a factor set by the organization itself.

An example of depreciation calculation using the declining balance method

If we continue to count depreciation further, then it will decrease indefinitely, but will always be greater than 0. In order to completely write off the cost of fixed assets, there is article 259 in the tax code, which stipulates that when the residual value of the object is equal to 20% of the original cost, depreciation calculated as residual quality / number of remaining months of operation.

Fourth (last) year of operation:

A \u003d 12,500 / 12 \u003d 1,042.

Thus, for 4 years, the fixed asset was completely written off using depreciation.

Video lesson. Methods for calculating depreciation of fixed assets of an organization

The video tutorial explains in detail the methods for calculating the depreciation of fixed assets of an organization and how it is calculated. The lesson is conducted by a consultant, an expert of the site “Accounting for dummies”, chief accountant Gandeva N.V. ⇓

You can download the slides and presentation for the video from the link below.

Write-off method based on the sum of numbers of years of useful life

Formula for calculating write-offs based on the sum of the number of years of useful life

Annual depreciation is calculated using the formula:

A \u003d Initial cost of OS * number of years remaining until the end of the useful life / sum of the numbers of years of the useful life

Depreciation example

Cost write-off method in proportion to the volume of products (works)

Formula for calculating the write-off method in proportion to the volume of production

A \u003d Actual production volume * Initial value / Estimated production volume over the entire useful life

Calculation example

The main asset is a car with an initial cost of 100,000. The estimated mileage is 400,000 km.

We find the ratio:

initial cost / estimated mileage = 100,000 / 400,000 = 0.25 rubles / km.

Actual mileage in January - 4000 km. A \u003d 4000 * 0.25 \u003d 1000.

Actual mileage in February - 9000 km. A \u003d 9000 * 0.25 \u003d 2250.

Actual mileage March - 2000 km. A \u003d 2000 * 0.25 \u003d 500.

In the same way, depreciation is calculated for each month. The chosen method of calculating depreciation is reflected in, OS-1a and OS-1b, as well as in the accounting policy of the organization.

We continue the topic of fixed assets, next time I will tell you about.

Don't worry, it just sounds scary and confusing. In fact, there is nothing complicated either in the formula or in the way it is applied. To begin with, we will give you a general idea of the components of this formula.

What are fixed assets

In general, these are all the facilities and facilities that you use to produce products, services, etc. This includes buildings and structures that you purchased or built, or rented (equipment, electronic equipment, and indeed all equipment that is used in the process of producing their products or providing services). All this has its estimated value reflected in the financial records of your enterprise. Each thing or object has a certain period of operation. During operation, wear of equipment, buildings and structures occurs. If you suddenly decide to sell them, then the price, of course, will differ from the original cost. There is, of course, a market price, but you will still be guided by the residual value of the object. How is this residual value determined?

What is depreciation and how is residual value determined?

As soon as the object of fixed assets is put into operation, from the first day of the next month, depreciation of this object begins to accrue, and this amount falls on production costs, that is, it is included in the cost of your products. In other words, depreciation is transferred to the cost of production.

And you should know that depreciation is not charged:

For land plots.
Perennial plantings that are in the process of growth that have not reached the depreciation period.
Housing facilities.
Museum exhibits.
According to the changes introduced from January 1, 2016 (Federal Law No. 150-FZ of June 8, 2015), depreciation is charged only on fixed assets whose value exceeds 100 thousand rubles. Anything below this cost is deducted immediately for materials. You can write off immediately or split this amount over the entire period of its operation.

The initial cost of fixed assets minus depreciation is the residual value of the fixed asset.

Depreciation methods

There are three depreciation methods:

Production or method based on the development of the object.
Rectilinear uniform write-off.
Accelerated Methods:

sum of years;
residual value.

In our case, as you remember, we are interested in the third, that is, accelerated, or the method of declining balance of depreciation with a formula and examples.

This method is useful for new firms. While the equipment is new, it brings more income, and it is more reasonable to write off its cost from fixed assets during this period. In the future, when it starts to break down and require investments in major repairs, you will not bear the cost of depreciation. This method works for the future. But it should be noted right away that there are a number of situations when this method is inappropriate to apply:

if the equipment has a shelf life of less than 3 years;
regarding office equipment and technology;
to objects that qualify as structures with a clear useful life.
for unique equipment.
in relation to cars, except for taxis and official cars.

How depreciation is calculated using the reducing balance method

For this calculation you need:

Calculate the residual value of the object (original cost minus depreciation).
Determine the depreciation rate. To do this, the initial or residual value should be divided by the number of years or months of its life.
To determine the acceleration factor, the company chooses it independently and fixes it in its accounting documentation.

Finally, we turn to the formula itself, it looks like this:

A \u003d C (ost) × H (a) × K / 100, where

C (ost) - the residual value of this object at the moment;

N (a) - the rate of depreciation contributions, we talked about how it is calculated a little higher;

K is the acceleration factor chosen by the enterprise.

As you can see, there is nothing complicated in this formula. However, let's explain with a simple example:

object costs 200,000, A(a) = 20, K = 3.

1st year - 200,000 × 20 × 3 / 100 = 120,000, the remaining amount will be 200,000 - 120,000 = 80,000;

2nd year - 80,000 × 20 × 3 / 100 = 48,000, the residual value will be 80,000 - 48,000 = 32,000;

3rd year - 32,000 / 12 = 2,667, debiting this amount monthly, you will fully pay off the cost of the object.

The faster you pay off depreciation, the faster the amount of profit will move to the income side. As you have already noticed, the amount of depreciation payments becomes smaller from the second year, since the accrual goes to the residual value. This is the whole point of this method. By the way, this method is fully consistent with IFRS. For those who are not in the subject, we give a brief explanation of what it is - these are International Financial Reporting Standards. An enterprise that hopes to enter the international market must certainly align its reporting with IFRS.

When is it appropriate to use the declining balance method?

Each company has the right to choose a depreciation method. Nevertheless, there are situations when the method we are considering is the most acceptable for the enterprise. Let's look at these cases in more detail:

If you are buying equipment with a low service life, then this method is for you.
The equipment you use tends to become obsolete, in which case it will give the highest profit only at the very beginning of operation.

There is a special offer for visitors to our site - you can get a free consultation from a professional lawyer by simply leaving your question in the form below.

In any case, the choice is yours, but whoever is warned is armed. We hope that we have at least shed some light on the essence of this method.

The law determines that the management of a business entity has the right to independently decide on the method of calculating the depreciation of property classified as fixed assets. The simplest of them, from the point of view of the product of settlement operations, is the linear method. However, in practice, it is more profitable for many entrepreneurs to quickly write off part of the costs incurred for the purchase and maintenance of equipment. For this, the optimal solution would be to choose the decreasing balance method for calculation.

Write-off of property

general information

The process of writing off the depreciation of equipment or other property in use in a non-linear way implies the repayment of its cost throughout the entire period of use. The amount of depreciation in this case changes in each billing period.

When choosing the diminishing balance method, the property owner speeds up the write-off process by applying an acceleration factor in the calculations.

Its value corresponds to a value of 1–2.5, which is set by the manager independently, in accordance with the goal pursued by him or personal preference. If the property was purchased on lease, the depreciation rate parameter can be tripled.

When is it relevant to use the write-off method

In simple terms, using the declining balance method of write-off, the company recovers the bulk of the cost of acquiring the property at the beginning of its operation, while it is still relatively new.

The application of the method is relevant for equipment, machinery or transport, the functionality or performance of which is lost over time. After being in operation for a certain period, its efficiency of use decreases, despite the fact that the life of the fixed asset has not yet expired. An additional nuisance may be the need to invest in the replacement of individual elements or to ensure repair work. In a situation of decreasing profits from the operation of equipment, it is in the interests of management to write off the costs of purchasing and updating fixed assets, or to make an additional contribution to existing resources from the depreciation fund.

Restrictions on using the method

Non-linear write-offs may not be applicable in all situations. The method is irrelevant with respect to:

property with a useful life of less than three years;
to buildings;
to buildings;
to furniture;
to light vehicles, if they do not belong to the category of taxis or official cars.

Read also: Business on mediation in the service sector

Declining Balance Depreciation Formula

The base value in the calculation is the residual value of the object. It is determined by the difference in its price at which the property was purchased and put into operation, and the previously written off depreciation.

To calculate, you need to know the value of the depreciation rate. The parameter is determined based on the useful life of the object. The depreciation coefficient is equal to a private one hundred percent and the life of the property. It can be expressed in various units of measurement that identify the time parameter. Their choice is determined by the period for which the accrual is made.

What is property depreciation

The acceleration coefficient is determined by the enterprise specialist authorized to make such decisions independently. Its value should be fixed in the accounting policy applied by the company.

To determine the write-off value, it is necessary to multiply the residual value of the object by the depreciation rate and the acceleration factor. The resulting value should be divided by 100.

Depreciation charges are debited every month. The amount of depreciation for the annual period will be needed to determine the value of the object, which has yet to be transferred to the expense category.

Declining balance depreciation, example

The easiest way is to understand the method of accruing depreciation of property using the reducing balance method using an example. Its initial data are information on the cost of equipment at the time of its commissioning - 50,000 rubles and the useful life of 5 years established by the positions of regulatory acts. The management of the company established and approved by local acts the acceleration coefficient corresponding to the value of 2.

The depreciation charge can be determined in two ways. The first method involves making calculations based on the monthly write-off rate. This requires a regulated period during which the object can be used, which is usually calculated in years, converted into months. When calculating the second method, an annual indicator is calculated, which is divided by 12 to determine the amount of the monthly write-off.

Depreciation methods

The depreciation rate for equipment is 20 percent per year. When written off in a linear way, it will take 5 years before deregistration. 20/12=1.67 percent is written off per month. They can also be defined as 100 percent of the cost over 60 months of operation. If we take into account the acceleration factor, then the annual wear rate increases to 20x2=40 percent. 40/12=3.33 percent is written off per month.

Using the method of declining depreciation balance, an example of which is considered, the write-off amount is calculated separately for each year. Initially, during the first accounting year, the cost of a property item on the balance sheet of a business entity corresponds to the price of its acquisition. At the end of this period, it is necessary to write off 50,000X40 / 100 \u003d 20,000 rubles. Every month you need to write off the accountant 20000/12 = 1666.7 rubles.