Engineering Economic Analysis

• 
  
  
  
  • --~-- - -- ~.- '" - ~ - -
  
  
  
  

346 DEPRECIATION

Declining Balance Depreciation

Declining balance depreciation applies aconstantdepreciation rateto the property's de-

clining book value. Two rates were commonlyused before the 1981 and 1986tax revisions,

and they are used to compute MACRS depreciationpercentages.These are 150and 200%of

the straight-linerate. Since 200% is twice the straight-linerate, it is called double declining

balance, or DDB; the general equation is

2

Double declining balance dt=-(Book valuet_I)N (11-4a)

Since book value equals costminusdepreciationcharges to date,

2 .. h

DDB dt= -(Cost - DeprecIationc arges to date)N

or

(ll-4b)

Compute the DDB depreciation schedule for the situationsin Examples 11-2 and 11-3.

Cost of the asset,B

Depreciable life, in years,N

Salvage value, S

$900

5

$70

SOLUTION

Year,

Depreciation for Yeart

Using Equation 11-4a,

t dt

Sum of Depreciation

Charges Up to Yeart,

t

Ldj

j=I

$360

576

706

784

830

=

Book Value

at End of Yeart,

t

BVt=B- Ldj

j=I

900 - 360= 540

900 - 576 - 324

900- 706 - 194

900 -784=::i: (^116) Ii == 'iiiiiii'
900 - 830 - 70 - S
1
2
3
4
5

(2/5)900= 360

(2/5)540= 216

(2/5)324= 130

~7/5l194= 78

(2/5)116= 46

~Fjgure 11-;1,illl!strates tl;1p~itufltiO!h

-....... - ---- ---

i '

-