Calculation Procedure:- Compute the rate of depreciation
Under the double-declining-balance method, depreciation is initially charged on a fixed-
percentage basis, with 2IN as the rate of depreciation. Thus, rate of depreciation = 2/8 =
0.25, or 25 percent. - Compute the depreciation charge for each year by the
fixed-percentage method
For the first year, depreciation charge = 0.25($20,000) = $5000. Then the book value at
the end of the first year = $20,000 - $5000 = $15,000. Following this procedure, construct
Table 1. - Compute the depreciation for the transfer study
Assume that the transfer in depreciation accounting from the fixed-percentage to the
straight-line method is made at the end of a particular year. Calculate the annual depreci-
ation charge D' that applies for the remaining life of the asset.
For example, at the end of the third year the book value is $8437, and the depreciation
that remains to be charged during the last 5 years is $7437. Then D' = $7437/5 = $1487.
Record the values found in this manner in Table 1. - Determine the transfer date
To establish the transfer date, compare each value of D' with the depreciation charge that
will occur in the following year if the fixed-percentage method is used. This comparison
shows that the method should be revised at the end of the fifth year because after that time
the fixed-percentage method results in a smaller depreciation charge. The depreciation
charges (Table 1) are thus D 1 = $5000; D 2 = $3750; D 3 = $2813; D 4 = $2109; D 5 = $1582;
D 6 = D 1 = D 8 = $1249.
CONSTANT-UNIT-USE METHOD
OF DEPRECIATION
A machine cost $38,000 and has a life of 5 years and a salvage value of $800. The pro-
duction output of this machine in units per year is: first year, 2000; second year, 2500;
TABLE 1. Depreciation by the Double-Declining-Balance Method
Depreciation Book value
Year charge, $ at year end, $ D', $
0 ... 20,000
1 5,000 15,000 2,000
2 3,750 11,250 ,708
3 2,813 8,437 ,487
4 2,109 6,328 ,332
5 1,582 4,746 ,249
6 1,187 3,559 ,280
7 890 2,669 ,669
8 667 2,002