Ppt

1. MODERN INSTITUTE OF
ENGINEERING & TECHNOLOGY
SUBJECT : Economics for Engineers
TOPIC : Discuss on decline balance depreciation method.
NAME : ATANU JANA
ROLL : 26900720064
Paper Code : HM-HU701
YEAR : 4th SEMESTER : 7th

2. A common depreciation-calculation system that
involves applying the depreciation rate against
the non-depreciated balance.
Definition

3. Reducing Balance Method charges depreciation at
a higher rate in the earlier years of an asset. The
amount of depreciation reduces as the life of the
asset progresses.
Definition (Cont.’)

4. Depreciation per annum
= Book Value x Depreciation Rate%
BV – The cost of an asset minus the
accumulated depreciation.
Method : Formula

5. Example
An asset has a useful life of 5 years.
Cost of the asset is RM30,000.
Rate of depreciation is 20%.
Depreciation expense for the 5 years will be as follows:
BV Rate Depreciation Accumulate
d
Depreciation
NBV
Year 1 30,000 x 20% = 6,000 6,000 24,000
Year 2 24,000 X 20% = 4,800 10,800 19,200
Year 3 19,200 X 20% = 3,840 14,640 15,360
Year 4 15,360 X 20% = 3,072 17,712 12,288
Year 5 12,288 x 20% = 2,457.6 20,169.6 9830.4

6. Comparison for Depreciation
Methods
⮚ Straight Line Method
⮚ Declining Balance Method (DB)
⮚ Sum of the Years’ Digits Method
(SYD)

7. Depreciation
Method
Description
Straight Line Method Declining Balance
Method
Sum of the
Years’ Digits
Method
Definition • A method of computing
depreciation and
amortization by dividing
the difference between an
asset’s cost and its
salvage value
• Popular technique to
calculate depreciation
charge
• Involves applying the
depreciation rate against
the non-depreciated
balance
• An accelerated method
for calculating an asset’s
depreciation (annual
depreciation)
Differences • Most common method
• Easiest method
• Simplified accounting
calculation
• Little complicated than
straight line method
• Provides more accurate
accounting of an asset’s
value
• Complicated
depreciation method
• More accurately method
but more confusing and
harder to compute to
straight line method
How methods used • By dividing the
depreciable amount of the
fixed asset by the useful
life of the asset
• Multiplying the book
value by a constant
depreciation rate at the
end of each fiscal period
• Using fractions based
on the number of years
of an asset’s useful life
Comparison

8. Depreciation
Method
Description
Straight Line
Method
Declining
Balance
Method
Sum of the
Years’
Digits
Method
Rate of
Depreciation
•Charges the same
amount of depreciation
•More depreciation is
charged at the
beginning of the life
time and less is
charged towards the
end
•More depreciation is
charged at the
beginning of the life
time and less is
charged towards the
end
Tax Advantages • No • Yes • Yes
Example • Shop fittings
• Office furniture
• Machinery
• Vehicles
• Office equipment
3 of the types of depreciation methods are under Financial Accounting
Depreciation Methods
• For accounting purposes

9. Thank
You