Page 423 - Accounting Principles (A Business Perspective)

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Exhibit 86: Comparison of straight-line and double-declining-balance depreciation methods

Straight-line method Partial-year depreciation calculations for the straight-line depreciation method are
relatively easy. Begin by finding the 12-month charge by the normal computation explained earlier. Then, multiply
this annual amount by the fraction of the year for which the asset was in use. For example, for the USD 7,600
machine purchased 2010 September 1 (estimated salvage value, USD 400; and estimated useful life, five years), the
annual straight-line depreciation is [(USD 7,600 - USD 400)/5 years] = USD 1,440. The machine would operate for
four months prior to the end of the accounting year, December 31, or one-third of a year. The 2010 depreciation is
(USD 1,440 X 1/3) = USD 480.
Units-of-production method The units-of-production method requires no unusual computations to record

depreciation for a partial year. To compute the partial-year depreciation, multiply the depreciation charge per unit
by the units produced. The charge for a partial year would be less than for a full year because fewer units of goods or
services are produced.
Double-declining-balance method Under the double-declining-balance method, it is relatively easy to
determine depreciation for a partial year and then for subsequent full years. For the partial year, simply multiply
the fixed rate times the cost of the asset times the fraction of the partial year. For example, DDB depreciation on the
USD 7,600 asset for 2010 is (USD 7,600 X 0.4 X 1/3) = USD 1,013. For subsequent years, compute the depreciation

using the regular procedure of multiplying the book value at the beginning of the period by the fixed rate. The 2011
depreciation would be [(USD 7,600 - USD 1,013) X 0.4] = USD 2,635.

An accounting perspective:

Uses of technology

Most companies report property, plant, and equipment as one amount in the balance sheet in their
annual report; however, that account is made up of many items. Computers and accounting
software have simplified record keeping for all of a company's depreciable assets. When
depreciable plant assets are purchased, employees enter in the computer the cost, estimated useful
life, and estimated salvage value of the assets. In addition, they enter the method of depreciation

Accounting Principles: A Business Perspective 424 A Global Text