Also known as a Percentage Depreciation Calculator, the Declining Balance Depreciation Calculator provides visability of a declining balance depreciation is where an asset loses value by an annual percentage.
For example, if an asset is worth 10,000 and it depreciates at 10% per annum, at the end of the first year the depreciation amount is 1,000 (10,000 x 10 %) and the balance is 9,000 (10,000 - 1,000),this balance is carried forward, so the next year the depreciation value is 900 (9,000 x 10%) and so on. This depreciation example is illustrated as default in the calculator below, simply edit the figures to produce your own declining balance depreciation calculation.
What is depreciation? For general understanding we can define it as an expense, though non-monetary at the time yet it costs us for using any assets we own/lease. Depreciation is inevitable when the assets are productive. But how do we calculate these expenses. How much is it really costing us to use that car we own, other than gas consumption and regular services expenditure that happens. Percentage method of calculating depreciation answers all such questions about our assets.
This method is usually applied to assets that are expensive in nature. They lose their value gradually, but useful life span of these assets cannot be estimated precisely. For instance, a car that you bought for £10,000 may depreciate 20% that is £2,000 in the first year of purchase. That would leave us with the remaining balance of £8,000. In the 2nd year it could depreciate 20% on the remaining balance that is £1,500 leaving the balance of £6,500, and so on.
Declining or reducing method of depreciation results is diminishing balance of depreciation expense with each accounting period. This means more depreciation occurs in the beginning of useful life of an asset. Depreciation expenses keep reducing with each passing accounting period and the least towards the end of the useful life.
This method is mostly useful for the assets that are more useful when they are new. For example, industrial equipment is more productive when new. This equipment loses functionality gradually towards the end of their useful life.
The percentage depreciation method can be used for assets that can be affected by technology from time to time. For example, computers and laptops can be very useful when they are new. Due to technological advancement like software or hardware improvements they tend to lose their value rapidly. Since this method uses declined value in each accounting period it is useful for such assets. Calculation for more basic assets, straight line depreciation method can be used.
Below are the steps that need to be followed while calculating depreciation with the help of this method. Let's take the example of a laptop with the initial value of £3,000, expected final/ residual value £1,000 and life span of 4 years. Expected rate of depreciation is considered as 15% annually here.
(£3,000 - £1,000) x 15 = £300
Balance = £3,000 - £300 = £2,700
Balance value then will be used as asset value for next year and new balance value will be calculated to be used in the year after that and so on.
The basic formula for calculating the declining percentage or declining balance depreciation is as follows:
Below is the explanation of the values that are required to add to the calculator for calculation.
The calculator will give you the detailed chart containing depreciation amount for each year of the useful life of the asset until the last year of expected useful life of the asset.
There is also an option to add to the table. This option will be helpful in comparing different expected values of the above-mentioned factors.
This is how you can take advantage of the Percentage (declining balance) depreciation method calculator.
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