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The declining balance method entails higher depreciation charges at the beginning of an asset's useful life and gradually decreasing charges in subsequent periods. Each year, the depreciation is calculated using the same constant percentage rate. In the first year, the system calculates the depreciation based on the asset's acquisition and production costs. In the following years, the calculation is based on the asset's remaining net book value.

As you can never reach a net book value of zero using this method, the system can switch to straight line depreciation towards the end of the useful life.

The depreciation amount determined in this way must not exceed a specified upper limit. This limit is the depreciation amount that is calculated with the straight line method, multiplied by a factor.

Percentage

Do one of the following:

  • If you have selected Yearly in the Calculation Base field, enter the annual percentage rate for the depreciation calculation.

  • If you have selected Monthly in the Calculation Base field, enter the monthly percentage rate for the depreciation calculation.

Factor

Enter the factor for calculating the upper limit of an asset's depreciation amount in each period. The upper limit is calculated using the straight-line method and multiplied by this factor. For example, the upper limit of an asset's annual depreciation is calculated with the following formula:

(Net Book Value – Salvage Value) * [1 / (Total Useful Life / 12)] * Factor

Note Note

If an asset's depreciation amount exceeds the upper limit, SAP Business One uses the upper limit as the depreciation amount instead.

End of the note.

Example Example

Asset X

Acquisition and Production Costs: 1,000 USD

Useful Life: 120 Months

Depreciation Method: Declining Balance

Calculation Base: Yearly

Percentage: 20%

Factor: 2.5

Automatically Change To: Depreciation Type 01 (Method = Straight Line, Calculation Method = Net Book Value/Remaining Life)

Capitalization Date: April 1st, 2010

Subsequent Acquisition: October 1st, 2010 with 500 USD

The system calculates the depreciation in the first year of the asset's useful life as follows:

  • April 1st, 2010 – September 30th, 2010

    The system first calculates the standard depreciation amount according to the declining balance method as follows:

    1000 USD * 20% / 12 * 6 = 100 USD

    Then, the system calculates the upper limit using the straight line depreciation multiplied by the factor as follows:

    1000 USD * 10% * 2.5 / 12 * 6 = 125 USD

    Since the standard depreciation amount does not exceed the upper limit, the system takes 100 USD as the asset's depreciation amount in the first half year of its useful life.

  • October 1st, 2010 – March 31, 2011

    Note Note

    When an asset transaction takes place after the depreciation starts and the asset uses the yearly calculation base, SAP Business One recalculates the standard depreciation amount and the upper limit using different criteria as follows:

    • For the calculation of the standard depreciation amount, SAP Business One does not subtract the depreciation of the periods prior to the asset transaction in the same fiscal year.

    • For the calculation of the upper limit, SAP Business One subtracts the depreciation of the periods prior to the asset transaction in the same fiscal year.

    For more information, see the calculations below, which resulted from the asset's subsequent acquisition.

    End of the note.

    The system first calculates the standard depreciation amount according to the declining balance method, as follows:

    (1000 USD + 500 USD) * 20% / 12 * 6 = 150 USD

    Then, the system calculates the upper limit using the straight line depreciation multiplied by the factor, as follows:

    (1000 USD + 500 USD – 100 USD) / * 10% * 2.5 / 12 * 6 = 175 USD

    Since the standard depreciation amount does not exceed the upper limit, the system takes 150 USD as the asset's depreciation amount in the second half year of its useful life.

As a result, the asset's depreciation in year 2010 is as follows:

100 USD + 150 USD = 250 USD

End of the example.
Automatically Change to

If required, specify a depreciation type with the straight line method as the alternative depreciation type.

After you specify a depreciation type with the straight line method, the system compares the depreciation amounts between the declining balance and straight line methods. When the depreciation amount calculated with the declining balance method falls below the straight line depreciation amount in a point of an asset's life, SAP Business One automatically switches to the straight line depreciation from that point on.

If you leave the field empty, SAP Business One depreciates the asset according to the declining balance method till the stopping point.

Recommendation Recommendation

Do not specify a depreciation type that does not use the straight line method. If you do so, SAP Business One always calculates the depreciation of an asset as zero.

End of the recommendation.

Example Example

Declining Balance Depreciation Without Alternative Method

Asset X

Acquisition and Production Costs: 60,000 USD

Useful Life: 60 Months

Depreciation Method: Declining Balance

Calculation Base: Yearly

Percentage: 40%

Factor: 2

Automatically Change To: None

Capitalization Date: January 1st, 2010

The system calculates the depreciation for each year as follows:

  • 2010

    The system first calculates the standard depreciation amount according to the declining balance method, as follows:

    60000 USD * 40% = 24000 USD

    Then, the system calculates the upper limit using the straight line depreciation multiplied by the factor, as follows:

    60000 USD * [1 / (60 / 12)] * 2 = 24000 USD

    Since the standard depreciation amount is equal to the upper limit, the system takes 24,000 USD as the asset's depreciation amount in 2010.

    Therefore, the monthly deprecation in 2010 is 2,000 USD.

  • 2011

    The system first calculates the standard depreciation amount according to the declining balance method, as follows:

    (60000 USD – 24000 USD) * 40% = 14400 USD

    Then, the system calculates the upper limit using the straight line depreciation multiplied by the factor, as follows:

    (60000 USD – 24000 USD) * [1 / (60 / 12)] * 2 = 14400 USD

    Since the standard depreciation amount is equal to the upper limit, the system takes 14,400 USD as the asset's depreciation amount in 2011.

    Therefore, the monthly depreciation in 2011 is 1,200 USD.

  • 2012

    The system calculates the standard depreciation amount and the upper limit, and gets the same result, as follows:

    (60000 USD – 24000 USD – 14400 USD) * 40% = 8640 USD

    Therefore, the monthly depreciation in 2012 is 720 USD.

  • 2013

    The system calculates the standard depreciation amount and the upper limit, and gets the same result as follows:

    (60000 USD – 24000 USD – 14400 USD – 8640 USD) * 40% = 5184 USD

    Therefore, the monthly depreciation in 2013 is 432 USD.

  • 2014

    In order to fully depreciate the asset in the last year of its useful life, the system calculates the depreciation as follows:

    60000 USD – 24000 USD – 14400 USD – 8640 USD – 5184 USD = 7776 USD

    Therefore, the monthly depreciation in 2014 is 648 USD.

Jan.

Feb.

Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

2010

2000

2000

2000

2000

2000

2000

2000

2000

2000

2000

2000

2000

2011

1200

1200

1200

1200

1200

1200

1200

1200

1200

1200

1200

1200

2012

720

720

720

720

720

720

720

720

720

720

720

720

2013

432

432

432

432

432

432

432

432

432

432

432

432

2014

648

648

648

648

648

648

648

648

648

648

648

648

End of the example.

Example Example

Declining Balance Depreciation With an Alternative Method

Asset Y

Acquisition and Production Costs: 60,000 USD

Useful Life: 60 Months

Depreciation Method: Declining Balance

Calculation Base: Monthly

Percentage: 3%

Factor: 5

Automatically Change To: Depreciation Type 01 (Method = Straight Line; Calculation Base = Monthly; Calculation Method = Acquisition Value/Total Useful Life)

Capitalization Date: January 1st, 2010

According to the alternative method, the monthly depreciation amount is 1,000 USD (60000 USD/60). Therefore, once the standard depreciation amount falls below 1,000 USD, the system automatically switches to the alternative method.

Starting from January 1st, 2010, the asset depreciates as follows:

  • 2010: January

    The system first calculates the standard depreciation amount according to the declining balance method, as follows:

    60000 USD * 3% = 1800 USD

    Then, the system calculates the upper limit using the straight line depreciation multiplied by the factor, as follows:

    60000 USD * (1 / 60) * 5 = 5000 USD

    Since the standard depreciation amount is less than the upper limit, the system takes 1,800 USD as the asset's depreciation amount in January.

  • 2010: February

    The system first calculates the standard depreciation amount according to the declining balance method, as follows:

    (60000 USD – 1800 USD) * 3% = 1746 USD

    Then, the system calculates the upper limit using the straight line depreciation multiplied by the factor, as follows:

    (60000 USD – 1800 USD) * (1 / 60) * 5 = 4850 USD

    Since the standard depreciation amount is less than the upper limit, the system takes 1,746 USD as the asset's depreciation amount in February.

  • 2010: March

    The system first calculates the standard depreciation amount according to the declining balance method, as follows:

    (60000 USD – 1800 USD – 1746 USD) * 3% = 1693.62 USD

    Then, the system calculates the upper limit using the straight line depreciation multiplied by the factor, as follows:

    (60000 USD – 1800 USD – 1746 USD) * (1/60) * 5 = 4704.50 USD

    Since the standard depreciation amount is less than the upper limit, the system takes 1,693.62 USD and rounds it to 1694 USD as the asset's depreciation amount in March.

  • ...

  • 2011: September

    The system first calculates the standard depreciation amount according to the declining balance method, as follows:

    (60000 USD – 27372 USD) * 3% = 978.84 USD

    As the depreciation amount falls below 1,000 USD, which is calculated with the alternative straight line method, the system switches to straight line depreciation from this month.

  • ...

  • 2014: May

    At the beginning of May 2014, the asset's accumulated depreciation has reached 59,372 USD, and its net book value is only 628 USD. Therefore, the asset can only depreciates 628 USD in May.

Jan.

Feb.

Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

2010

1800

1746

1694

1643

1594

1546

1499

1454

1411

1368

1327

1288

2011

1249

1211

1175

1140

1106

1072

1040

1009

1000

1000

1000

1000

2012

1000

1000

1000

1000

1000

1000

1000

1000

1000

1000

1000

1000

2013

1000

1000

1000

1000

1000

1000

1000

1000

1000

1000

1000

1000

2014

1000

1000

1000

1000

628

End of the example.