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.
Do one of the following:
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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 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 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:
As a result, the asset's depreciation in year 2010 is as follows: 100 USD + 150 USD = 250 USD End of the example. |
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 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
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 |
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 |