»Accrual of depreciation using the declining balance method

Depreciation accrual using the declining balance method

Already from the name of the method - "diminishing balance" - it becomes clear that the basis for calculations will be the residual value of the object, equal to the initial costs of its acquisition and commissioning minus the already repaid charges at the beginning of the reporting period.

The second indicator that is needed for the calculations is the depreciation rate. It is determined based on the useful life of the property. The wear rate is calculated as 100% / n (n is the service life in years or months, depending on the period for which the accrual is made).

The third component of the formula is the acceleration factor, which the company sets independently and fixes it in the accounting policy of the accounting department.

The formula itself is as follows:

A = Co * (K * Ku) / 100, where
A - the amount to be debited;
Co is the residual value of the object;
K is the rate of wear;
Ku is the acceleration coefficient.

Let's look at an example of how to calculate depreciation using the decreasing balance method.

Initial data:

The amount spent on the acquisition of fixed assets - 50,000 rubles;
- useful life - 5 years;
- the acceleration factor established by the accounting department is 2.

There are two ways to calculate the amount of the depreciation contribution: using the monthly rate (the service life is converted into months) or by calculating the annual rate, and then dividing the amount by 12.

For the calculations, you will need figures for both the year and the month, since depreciation deductions are made monthly, but the annual depreciation amount is necessary to determine the residual value of the object.

Let's start by determining the depreciation rate. It will be 20% per year (100% / 5 years), or 1.67% per month (20% / 12 months or 100% / 60 months). We take into account the coefficient of accelerated depreciation (Ku = 2) and we get the rate of wear per year - 40% (3.34% per month).

Depreciation using the declining balance method is charged for each year separately:

1. In the first year, the residual value is equal to the original. The amount to be debited will be: 50,000 * 40/100 = 20,000 rubles. Or 1670 monthly.
2. Depreciation for the second year of operation begins with the determination of the residual value: 50,000 - 20,000 = 30,000 rubles. Using our formula, we calculate the annual amount of depreciation: 30,000 * 40/100 = 12,000 rubles. (1000 per month).
3. The amount of deductions for the third year is calculated in the same way: (30,000–12,000) * 40/100 = 7200 rubles / year or 600 rubles. / month.
4. In January of the fourth year of use, the remainder of the initial costs for the purchase of the object is already 10,800 rubles. (18000–7200). Accordingly, A = 10800 * 40/100 = 4320 rubles. (monthly - 360).
5. At the beginning of the fifth year, the residual value is 10,800 - 4,320 = 6,480 rubles. This amount is 13% of the price of the fixed asset recorded when it was added to the balance sheet. It is worth stopping here and turning to tax legislation. According to Art. 259 of the Tax Code of the Russian Federation, at the moment when the book value of the property reaches 20% of the original amount, the procedure for calculating depreciation changes. To maintain the monthly depreciation schedule and write off the costs incurred for the facility in full, the balance is distributed by the number of months until the end of the useful life. That is, we divide 6480 by 12 months and we get the amount of monthly depreciation in the last year of useful use - 540 rubles.

Thus, over the entire life of the object, its book value decreases by the amount of depreciation until it reaches zero.

It is worth noting that having chosen the diminishing balance method as the depreciation method, it must be applied for the entire service life of the fixed asset: from the moment the object is capitalized (starting from the 1st day of the next month) and until the end of depreciation deductions. The basis for the termination of depreciation is the full repayment of the property value or its removal from the balance sheet of the organization.

Since entrepreneurs and legal entities can use different methods to calculate depreciation, in practice, depreciation is often used to calculate depreciation using the diminishing balance method.

Non-linear way

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The diminishing balance method refers to non-linear methods of depreciation and is characterized by uneven depreciation over the useful life of a fixed asset.

If the organization has chosen the diminishing balance method for calculating depreciation, then in the calculations it is necessary to use an acceleration factor from 1 to 2.5 times. It is established in accordance with the legislation of our country. With this non-linear method of calculating depreciation, the main part of the cost of fixed assets is written off even in the first years of operation. This means that the company has the ability to reimburse its own costs of acquiring property more efficiently. And if a leasing agreement is concluded for movable property, then the acceleration factor cannot be more than three.

When is it advisable to use a nonlinear method?

The accrual of depreciation by the method of diminishing balance is considered the most appropriate in those cases when it comes to fixed assets, the operating efficiency of which decreases every year. For example, about equipment for the production or performance of a certain type of work. Since all mechanisms sooner or later fall into disrepair and require repair, the performance of the equipment after several years of operation is significantly reduced, and the cost of repairs increases. So the non-linear method is the best solution in this case.

Depreciation calculation

Depreciation is calculated using the diminishing balance method based on the residual value of the fixed asset at the beginning of the period and taking into account the depreciation rate, which is multiplied by the acceleration factor.

The calculation is made according to the formula: A = Comp x Na x Ku / 100

Here Comp is the residual value at the beginning of the period (month or year), Na is the depreciation rate, which is calculated as 1 / useful life x 100%, and Ku is the acceleration factor set by the organization.

Now we will give an example of depreciation using the diminishing balance method. Let's say that an organization has bought a fixed asset that is worth 50,000 and has a useful life of five years. In this case, the depreciation rate will be 1/5 x 100% = 20%. As for the acceleration factor, we use 2 - this is the standard factor used by most enterprises.

We get:

• the first year - the annual depreciation amount will be: 50,000 x 20 x 2/100 = 20,000 rubles, and the monthly rate will be 20/12 = 1.67; therefore, depreciation for one month will be 50,000 x 1.67 x 2/100 = 1,670 rubles;
• second year - the annual amount will be: 30,000 x 20 x 2/100 = 12,000 rubles (the residual value at the beginning of the year is 30,000 rubles);
• third year - the annual depreciation amount will be 18,000 x 20 x 2/100 = 7,200 rubles, and the residual value at the beginning of the third year will be 30,000 - 12,000 = 18,000 rubles;
• the fourth year - the annual depreciation amount will be 10,800 x 20 x 2/100 = 4,320 rubles, and the residual value at the beginning of the next year will be 18,000 - 7,200 = 10,800 rubles;
• since at the beginning of the fifth year the residual value of the fixed asset will be 10,800 - 4,320 = 6,480 rubles, which is 13% of the initial value of the property, the monthly depreciation amount in the last year of operation of the fixed asset will be 6,480 / 12 = 540 rubles.

It is worth noting here that the residual value of the fixed asset at the beginning of each subsequent period is reduced by the amount of depreciation accrued for the previous period.

But, constantly decreasing, it will not reach zero, since according to the law, when the residual value reaches a value equal to 20% of the original cost, the balance must be fixed and monthly depreciation must be calculated in proportion to the number of remaining months of operation.

Disadvantage of the method

It should be noted that depreciation by the diminishing balance method cannot be applied to some types of fixed assets, namely:

• to passenger cars (except for taxis and service cars);
• to office furniture and interior items;
• to equipment and machines, the service life of which is up to three years;
• to unique equipment that is used for the manufacture of limited types of products.

Organizations, when calculating depreciation of fixed assets, can use both a linear method of calculating depreciation and non-linear methods, in particular diminishing balance method.

Methods for calculating depreciation are established in the accounting policy of the organization for tax purposes. You can switch from a nonlinear method to a linear one no more than once every five years.

When applied

Non-linear methods of depreciation and diminishing balance method in particular, they imply an uneven accrual of depreciation of fixed assets during the useful life.

The non-linear method cannot be applied to the following types of machines, equipment and vehicles:

• Unique equipment used in the production of limited types of products.
• Cars (except for service cars and taxis).
• Office furniture, interior items.
• Machines and equipment with a service life of up to three years.

When calculating depreciation, an acceleration factor from 1 to 2.5 times is used, set in accordance with the legislation of Russia. Therefore, the main cost of a fixed asset is written off in the first years of its operation. An organization has the ability to recover the cost of acquiring a property, plant and equipment more efficiently.

In accordance with the lease agreement for the organization's movable property, the acceleration factor cannot be more than 3.

How is it calculated

Using diminishing balance method the depreciation amount is calculated based on the residual value of the fixed asset at the beginning of the period and the depreciation rate. In this case, the depreciation rate is multiplied by the acceleration factor.

A = Comp x Na x Ku / 100

Comp- residual value of fixed assets at the beginning of the period (year, month);
On- the depreciation rate of the object, calculated by the formula: 1 / useful life x 100%;
NS Is the acceleration factor set by the organization.

For example: The organization bought a fixed asset worth 50,000 rubles. Its useful life is 5 years. The depreciation rate will be 20% (1/5 x 100%). The acceleration factor in the accounting policy is adopted as 2.

In the first year:

Operation, the annual depreciation amount will be 20,000 rubles. (50,000 rubles x 20 x 2/100). In the same way, you can break down the depreciation charge on a monthly basis. So the monthly depreciation rate will be 1.67 (20/12 months). And the amount of depreciation for January will be equal to 1,670 rubles (50,000 rubles x 1.67 x 2/100). Inaccuracies are due to rounding.

In the second year:

Operation, the annual depreciation amount will be 12,000 rubles. (30,000 rubles x 20 x 2/100). The residual value of the fixed asset at the beginning of the year will be 30,000 rubles. (50,000 rubles - 20,000 rubles).

We see that the residual value of the fixed asset at the beginning of each subsequent year is reduced by the amount of the accrued depreciation of the previous year.

In the third year:

Operation, the annual depreciation amount will be 7,200 rubles. (18,000 rubles x 20 x 2/100). In this case, the residual value at the beginning of the third year is 18,000 rubles. (30,000 rubles - 12,000 rubles).

In the fourth year:

Operation, the annual depreciation amount is 4 320 rubles. (10 800 rubles x 20 x 2/100). The remaining amount at the beginning of the fourth year will be RUB 10,800 (RUB 18,000 - RUB 7,200).

Counting in this way, the amount of depreciation will constantly decrease, but will not reach 0. Therefore, Art. 259 of the Tax Code of the Russian Federation, it is assumed that when the residual value reaches 20% of the initial value, the balance is fixed and the monthly depreciation amount is calculated in proportion to the number of remaining months of operation.

The beginning of the fifth year:

In our example, at the beginning of the fifth year, the residual value was 6,480 rubles (10,800 rubles - 4,320 rubles) or 13% of the initial cost (6,480 rubles / 50,000 rubles x 100%). Consequently, the monthly depreciation amount in the last year will be 540 rubles. (6 480 rubles / 12 months).

Thus, depreciation of fixed assets and intangible assets is charged diminishing balance method... Next, consider the method of writing off the value by the sum of the number of years of useful life and the method of writing off the cost in proportion to the volume of production.

It can be described as the process of transferring part of the cost of fixed assets to manufactured products.

Companies independently determine the optimal depreciation method for their activities. Depreciation of equipment must be reflected both in accounting and in tax accounting. However, the methods used in these accounting systems will differ. In accounting, one of the most well-known methods of calculating depreciation is the declining balance method.

The diminishing balance depreciation method is a method that is applicable in a situation when the operation of an object is carried out unevenly. In essence, depreciation using the diminishing balance method is advisable when the maximum load on the asset falls on the initial periods of its use.

In what cases is depreciation by the diminishing balance method beneficial to the company, and in what cases it is not?

Depreciation using the diminishing balance method makes sense in cases where the main capabilities of the object of fixed assets are realized in the first years after commissioning. Most often, this method is used in relation to digital and computer equipment, since its cost is rapidly decreasing, despite the fact that consumer characteristics remain unchanged.

However, in some cases, this method does not justify itself. So, you should not use the method of reducing the depreciation balance for objects whose useful life does not exceed three years - the owner of the asset will not see the benefits.

How to calculate depreciation using the declining balance method?

Calculation of depreciation using the diminishing balance method assumes the use of the residual value of the fixed asset. The calculation of its annual value will be carried out according to the following formula:

• Depreciation = Residual Value x Depreciation Rate.

In the event that the equipment is used intensively, an indicator such as an acceleration factor is added to the formula, and it takes the form:

• Depreciation = Residual Value x Depreciation Rate x Acceleration Rate / 100%.

Let's consider what each of the indicators is.

The residual value of an object is determined as the difference between the initial cost of the fixed asset and the depreciation already accrued on it. This type of assessment is provided to reflect the value of fixed assets in line 1150 of the balance sheet.

The depreciation rate is an indicator that represents the annual percentage of the reimbursement of the value of an item of property, plant and equipment. Thus, the depreciation rate indicates how much of the asset's cost will be written off through depreciation during the year.

The acceleration factor is used when the object is used very intensively. The letter of the Ministry of Finance No. 07-05-06 / 220 dated 08.22.06 says that it is allowed to apply the acceleration factor only by calculating depreciation using the reduced balance method. The company has the right to decide on its own whether or not to apply this factor in the calculation of depreciation.

The value of this relative indicator is determined by the company, but within the limits stipulated by law. At the same time, the organization can justify the choice made by technical documentation, permission of authorized bodies, as well as a time sheet and a schedule of employees' exits. At the same time, it is personnel documents, such as a timesheet or exit schedule, that will be able to confirm the intensity of the use of the object of fixed assets.

Example of calculating depreciation using the declining balance method

In order to visually consider how the depreciation of the declining balance in accounting is calculated, we will give a specific example.

The printing company "Elegia" LLC has acquired a digital cutting machine. Acquisition costs amounted to 540 thousand rubles. The useful life is 7 years. The internal documents of the company secured the method of repayment of the value of fixed assets using the diminishing balance method. Due to the fact that this machine will bring the maximum income in the first years of its operation, LLC "Elegia" decides to use the acceleration rate in the calculation, the value of which is 1.7%.

1. Determine the annual depreciation rate

HA = 100% / 7 years = 14.29%.

1. Taking into account the acceleration rate, the annual depreciation rate in percentage will be equal to:

HA = 14.29% x 1.7% = 24.29%.

1. Calculation of the amount of depreciation for the 1st year of equipment operation:

A = 540,000 rubles. x 24.29% = 131,166 rubles, that is, the company will amortize property in the amount of 10,930.50 rubles every month. (131 166/12 months).

1. Calculation of the amount of depreciation for the 2nd year of the object's operation:

A = (540,000 - 131,166) x 24.29% = 408,834 x 24.29% = 99,305.78 rubles, respectively, the company will write off 8,275.48 rubles monthly.

1. Calculation of the amount of depreciation for the 3rd year of equipment use:

A = (408 834 - 99 305.78) x 24.29% = 309 528.22 x 24.29% = 75 184.40 rubles. At the same time, the company will write off 6265.37 rubles monthly for depreciation of the machine.

In subsequent periods, the calculation of the depreciation amount will be carried out in the same way.

Thus, the determination of the amount of wear by the method of decreasing balance allows the owner of the OS to take into account the intensity of the equipment use.

It is being repaid at an accelerated rate.

What is the method of diminishing depreciation balance

The essence of the method

For a competent calculation, or is used, including the method based on reducing the remainder. This technique is used when the property decreases in value unevenly over time. At the same time, the largest share of the cost or gives away in the first years of its operation.

These primarily include those objects that are created by investing a large amount of intellectual labor, that is, when using them, there is a significant excess of moral damage over physical.

In other words, the object can still be operated further, since it has not physically deteriorated, however, due to its application for practical purposes, it is impractical and ineffective.

In this case, to write off the value of highly intelligent objects, a method based on reducing the balance is used, thanks to which it can be applied. For this, a special acceleration coefficient will be used, the range of which ranges from 1-2.5. In some cases, this coefficient can be increased to 3, for example, when concluding a contract for, that is. The economic sense in this case boils down to the fact that the enterprise quickly recovers the costs of a fixed asset or intangible asset, while they are still relatively modern or new.

The diminishing remainder method is discussed in this video:

Legislation on this issue

The fact that the method of reducing the balance can be used to calculate depreciation is indicated in clause 3 of PBU 6 \ 01 "Accounting for fixed assets", approved by Order of the Ministry of Finance of Russia dated March 30, 2001 No. 26n and clause 4 of PBU 14/2007 "Accounting for intangible assets ", Approved by the Order of the Ministry of Finance of the Russian Federation of December 27, 2007 No. 153n.

According to these documents, the calculation for this method is as follows:

1. . In the calculation of annual deductions, either the initial cost less depreciation at the beginning of the year, multiplied by the rate of depreciation deductions, is involved. This norm is calculated according to. In addition, for the calculation can also be applied, by which the set is multiplied;
2. . The calculation of monthly deductions is based on the residual value or the initial value less depreciation at the beginning of the month, multiplied by a special acceleration factor and divided by objects in months.

The reflection of depreciation in a similar way in 1C is shown in the video below:

Calculation formula and example

In order to clearly understand exactly how depreciation is calculated using the method of decreasing balance on fixed assets and, we will define a formula for the calculation and give a specific example of its use.

According to PBU 6/01, the amount of depreciation deductions for fixed assets for the year will be equal to: A = Os * K / PPE, where:

• A - depreciation for the year;
• K is the acceleration factor adopted in the organization (no more than 3);
• PPE is the useful life of the facility (in years).

Then the annual is divided into 12 months.

In accordance with this formula, we will solve a specific example:

In January 2016, Perspektiva received a high-tech one worth 1.5 million rubles. The organization uses an acceleration factor, the value of which is 2. The useful life of the facility is 10 years. To use the following table:

As can be seen from the above example, after the end of the useful life of the object, there is a part of the residual value in the amount of 161,676.48 rubles, which was not written off. In this case, Perspektiva LLC can act in one of the following ways:

• include this entire amount as depreciation deductions in the month following the useful life, in this case it will be February 2026;
• include this amount in depreciation for 2026, that is, in our case it is only in January 2026. If the object, for example, was acquired not in January, but in June, then the residual value could be included proportionally in all 5 months 2026, that is, 32,335.30 rubles. monthly;
• continue to accrue depreciation after January 2026, monthly charging RUB 2,740.28.

For intangible assets, the formula is the same, only depreciation and useful life are calculated in monthly terms.

Consider a specific example of depreciation on an intangible asset.

In September 2017, OOO Perspektiva received a computer program worth 74 thousand rubles. The organization uses an acceleration factor of 2. The useful life is 7 months. To calculate the monthly depreciation, we present the following table:

This table shows that with the help of depreciation deductions and the acceleration factor, the cost of an intangible asset was written off in 6 months with a useful life of 7 months.

Even more information about the method of reducing the balance is presented in this video: