All right. Here we are with the last
method of depreciation we're going to be
doing the double declining
method which is again a variation of the
conic balance method we're just going to
be using the variable
of two we're going to do it twice as
fast but again everything's the same
same tac so we don't have to do
anything there we're now going into the
1231 adjustment where we have to do the
calculations,
remember this is a hard harder
difficulty level because it has three
steps
not that the three steps are harder but
there is one that that is challenging
you have to kind of remember
but let's get to it. Step one is we need
to find the straight line rate
straight line rate is one over the
useful life,
now remember this is double declining
method this is not straight line method
times two we're not going to do tac
minus savage value
over useful lifetimes too that's wrong,
we have to do it in these steps. So our
useful life here is going to be five
years
so one over five that's going to give us
a straight line rate of 0.2.
Now we're going to take that straight
line right in step two and multiply it
by our variable or our factor
in this situation uh because it's double
declining we're going to multiply it by
two
so straight line rate times two if this
was triple declining method then you
would multiply it by three if this is
one and a half to
a declining level this would multiply by
one and a half
but because ours is double we will use
two. So our straight line rate again is
.20
times two that's going to give me a
double declining rate of 0.4,
now that we have that number we're done
we're not going to do step one or step
two
anymore because that's a fixed number.
Step three we have to do annually
so step three to find our depreciation
per year
we're going to take our book value,
which our book value is going to be our
tac minus our accumulated depreciation,
so we have an accumulated depreciation
subtract it out of the tac
times the double declining rate that we
just found and that will give us our
depreciation expense for the year,
so let's begin with year one. Now by the
way just as a side note if you're ever
doing these
as an example or practice problems on
the side and it asks you to go to like
year two
uh I would typically say the best idea
you're gonna get
from understanding how to do this is to
at least go to your three
if not four if you can because you're
gonna see things that happen in year one
and year two
that doesn't that you could see
differently in your three and so if you
want to get the full picture
at least go to your three and I'll show
you what we're talking about here in a
minute.
Well let's go to year one we're going to
take the book value for year one
now the book value is again tac minus
cumulative depreciation we have no
accumulated depreciation as of year one
so for us year one will always be
whatever the tac is minus zero because
there is no accumulated depreciation to
this point,
so sixteen thousand minus zero times our
point
four rate and that will give us a
depreciation
expense for year one of 6400.
Now again I'm going to do my table year
one
6400 accumulated depreciation
6400 and then I'm going to put in my
journal entry for 12 31 again that has
the accounts haven't changed
depreciation expense and accumulated
depreciation
it's just the numbers this year we're
going to do 6 400.
Now we'll go into year two
book value well the book value for year
2 is going to be 16
000 tac minus the 6400 that we have now
notice
this is not the 6400 under depreciation
expense this is the 6400 under
accumulated depreciation
if you're drawing it from the table, I
don't want you to use the wrong number
because yes they are the same number
they're both 6400 but
later on in the next year you'll see
that they're going to be different.
So if I subtract 16 000 minus 6400 and
multiply that by
0.4 that will give me a depreciation
expense for this year of
38.40 add that to my table year 2 3840
add the 3840 to the existing 6400 for
accumulated depreciation
that will give me 10240 and I will do my
journal entry
depreciation expense again of 38.40
and accumulated depreciation of 38.40.
All right. Let's look at year three year
three is going to be sixteen thousand
minus our accumulated depreciation of
ten thousand
for uh 240, this is why I said go to at
least year three because
the 6400 you could look at and go what's
either depreciation expense or
accumulated depreciation but that's not
the case it's always the one coming from
accumulated depreciation
so times the 0.4 that will give me 2304
put that in my table 2304
add that to the existing ten thousand
two forty that'll give me
twelve thousand five forty four.
Notice nowhere on here have we done
any kind of calculation for depreciable
base this
these this method does not start with
tac
minus savage value so but we need to
have that in the back of our minds
it's still going to be there our tac
is 16 000 our savage value is 4 000 that
means we cannot go over 12 000
and if we go with this right here with
the 2304 that means that we have gone
over the 12 000 and we can't do that
again why because the decreasable base,
tac minus savage value
so we have 16 000 minus the 4 000
that would give us 12 000. we cannot go
over that number.
So how do we bring twelve thousand five
forty four down to twelve thousand
we subtract out forty five forty four
and in order to subtract out five forty
four from the accumulated depreciation
we have to subtract out five forty four
under the depreciation expense
that would give me the 12 000, which
means that for year three our
depreciation expense needs to be
1760. So again our journal entry would
be depreciation expense
of seven sixty and a cumulative
depreciation of one thousand seven
sixty. Okay. Notice that we hit our
accumulated depreciation we we had our
depreciable base
way earlier than the five years and that
that does happen depending on
the useful life and the salvage value
within the problem it could happen early
it could happen in last year
but it's pretty typical when you're
doing dealing with a declining balance
method.
But just for formality reasons if we're
going to do year four
year four is going to be zero because
we've already hit the 12 000, so there's
nothing else we can do
zero is still going to be 12 000,
there's gonna be no entry for year four
and then year five same thing zero
uh filling out our table zero twelve
thousand
no entry/ So again that's pretty typical
when it comes to
declining balance method but please
please please make sure you do that side
calculation
for your depreciable base because you do
not wanna go over that amount
but that is how you do the double
declining balance method
hopefully it made sense you'll have a
good one.