In the Reducing balance depreciation method, a decrease of the depreciation amount over the service life of the asset is calculated. The depreciation amount is based on the residual value of the fixed asset at the beginning of the reporting year, and the depreciation rate is calculated from the useful life and the acceleration. This method is used in high-tech industries and for high-efficiency equipment and machinery. For more information, see "Reducing balance depreciation" in the Applications and Business Processes Help.
For example: The depreciation calculated for a machine. The cost of the machine is 120,000 RUB, and its established service life, taking into account the functional and the physical deterioration, is eight years. The speed-up is equal to two. In this case, the yearly depreciation amount takes into account that the speed-up is 25% (100:8*2).
Note
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The speed-up factor is intended to help the company to depreciate the fixed asset faster. |
|
Year |
Net book value at the start of the year |
Depreciation rate (%) |
Depreciation (RUB) |
Net book value at year end |
|---|---|---|---|---|
|
1 |
120,000 |
25 |
30,000 |
90,000 |
|
2 |
90,000 |
25 |
22,500 |
67,500 |
|
3 |
67,500 |
25 |
16,875 |
50,625 |
|
4 |
50,625 |
25 |
12,656 |
37,969 |
|
5 |
37,969 |
25 |
9,492 |
28,477 |
|
6 |
28,477 |
25 |
7,119 |
21,357 |
|
7 |
21,357 |
25 |
5,339 |
16,018 |
|
8 |
16,018 |
25 |
4,005 |
12,014 |
Theoretically, the balance value will never be written off. The balance in the example, for the eighth year, in the Net book value at year end column, 12,014 will be written off in the end year of depreciation accrual. The example shows how the maximum depreciation amount is written off in the first year of the service life, which allows an organization to offset its cost in the most effective way when a fixed asset is acquired.
