Depreciation (SYD,

Declining balance,
Inventory,
retirement &
replacement
method)
 Decreasing Charge or Accelerated Methods
-Provide higher depreciation in the earlier years and lower depreciation in the later years of the useful life of the asset

-Result in a decreasing depreciation charge over the useful life

Rationale for Accelerated Depreciation

-New assets are generally capable of producing more revenue in the earlier years than in the later years

-Cost of using an asset includes not only depreciation but also repairs on such asset
Decreasing charge
methods
 Sum of years’ digits
(SYD)
 Declining balance
 Double declining
balance
 Sum of years’ digits (SYD)
• Provides for depreciation that is computed by multiplying the depreciable amount
by a series of fractions whose numerator is the digit in the useful life of the asset
and whose denominator is the sum of the digits in the useful life of the asset.
 Declining Balance Method
• Under this method, a fixed or uniform rate is multiplied by the declining carrying amount of the asset in
order to arrive at the annual depreciation.

• This method is also known as fixed rate on diminishing carrying amount method.
 Double Declining balance method
• Under this method, a fixed or uniform rate is multiplied by the declining carrying amount of the asset in
order to arrive at the annual depreciation. (Same with declining balance method)

• But under this method, the straight line is rate is simply doubled to get the fixed rate. (200% of the straight
line rate)

150% declining balance

• Fixed rate is 150% of the straight line rate
 Inventory method

• Consists of merely estimating the value of the asset at the end of the period.

• The difference between the balance of the asset account and the value at the end of the year is then recognized as
depreciation for the year.

• In recording depreciation, no accumulated depreciation account is maintained. The depreciation is credited directly to
the asset account.
 RETIREMENT METHOD REPLACEMENT METHOD
NO DEPRECIATION IS RECORDED NO DEPRECIATION IS RECORDED
UNTIL THE ASSET IS RETIRED UNTIL THE ASSET IS RETIRED &
REPLACED.

DEPRECIATION = ORIGINAL COST DEPRECIATION = REPLACEMENT

OF THE ASSET RETIRED MINUS COST OF THE ASSET RETIRED
SALVAGE PROCEEDS MINUS SALVAGE PROCEEDS
CHANGE IN USEFUL
LIFE
 The useful life of an item of PPE shall be
reviewed at least at each financial year-end and
if expectations are significantly different from
previous estimate, the change shall be
accounted for as a change in accounting
estimate. (Prospective application)

 Therefore, the depreciation charge for the

current and future periods shall be adjusted.
 CHANGE IN
DEPRECIATION
METHOD
 The depreciation method shall be reviewed at least
at each financial year-end and if there has been a
significant change in the expected pattern of
economic benefits embodied in the new asset, the
method shall be changed to reflect the new pattern.

 When such a change in depreciation method is

necessary, the change shall be accounted for as a
change in accounting estimate.

 Therefore, the depreciation charge for the

current and future periods shall be adjusted.
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