Declining Balance with Depreciation Limit

This calculation type enables you to specify annual depreciation limits based on a percentage of an asset's cost. This method supports asset management practices that are commonly used in some European countries. In environments in which this is legally acceptable, the advantage to this method is that it provides greater decreases in value in the first years of an asset's service. In some environments, a company may use this depreciation method initially and then switch to straight-line when that method provides a greater write-off.

This method runs three calculations and performs comparisons between the results.

First, it calculates using the formula that is already documented for Declining Balance with a Switch to Straight Line:

NBV x ( (Number of Periods to Depreciate/Life) x DB% )

(See DB column in the table provided with the following example.)

It then calculates using the specified limit percentage of original cost or bet book value:

NBV x Limit%

(See MAX column in the table provided with the following example.)

The results of these two calculations are compared and the system determines which amount is lesser. (See Comparison 1 column in the table provided with following example.)

Finally, it calculates using the Straight Line formula:

NBV x (Number of Periods to Depreciate/Remaining Life)

(See SL column in the table provided with following example.)

Results of the Straight Line calculation are compared with the lesser amount from the first comparison. (Column SL compared with column Comparison 1 in the following table. Comparison 2 column shows when the Straight Line method produces the greater result.)

The greater amount between this final comparison is the annual depreciation amount. (See Depr column in the table after the following table.)

Declining Balance with Depreciation Limit Example

The following table shows data that is used in the depreciation example that follows it.

Attributes	Data
Asset Cost	10,000.00 USD
Life	96 periods (8 years)
Begin Depr Dt.	01/01/2006
Declining Balance %	300%
Limit %	30%

Depreciation Results

The following table shows yearly depreciation and the calculation that is used to produce the result.

Year	NBV	DB	Max (Limit%)	Comparison 1	SL	Comparison 2	Depr.
Year 1	100000	37500	30000	30000	12500		30000
Year 2	70000	26250	21000	21000	10000		21000
Year 3	49000	18375	14700	14700	8167		14700
Year 4	34300	12862	10290	10290	6860		10290
Year 5	24010	9004	7203	7203	6003		7203
Year 6	16807	6303	5042	5042	5602	SW	5602
Year 7	11205	4201	3361	3361	5602	SW	5602
Year 8	5602	2101	1681	1681	5602	SW	5602