This method allows depreciation of an asset at an accelerated pace. The following formula is used while calculating depreciation per period.
Current Period Depreciation = Net Book Value of Previous Period x Factor x (1/n)
Net Book Value = Starting Book Value – Current Period Depreciation
Starting Book Value = Net Book Value of Previous Period
| • | Starting Book Value of First Period = Acquisition Cost |
| • | Factor = Value entered while defining the depreciation definition (enter a percentage value, usually 200% or 150% |
| • | n = Number of depreciation periods |
Salvage value is not considered while calculating depreciation for each period. But the acquisition cost – accumulated depreciation value should not go below the salvage value. For any depreciation period, if the acquisition cost – accumulated depreciation value goes below the salvage value, the depreciation for that period should be reduced so that the total value of the asset does not go below the salvage value.
An asset value is $140,000. It will be depreciated over five years, and the factor entered is 200%. The depreciation rate for this method is 200% x (1/5) = 40%.
The first period calculation is 140,000 x 40% = 56,000.
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