Straight line and Declining balance Depreciation

[Amit_H]

Hi,

Can someone help me to understand Straight line and Declining balance Depreciation. how it calculate, what's the process.

[Runjay Patel · Accepted solution]

Hi @Amit_H ,

There are two type of depreciation calculation.

1. Straight Line and
2. Declining balance 

Straight line method says that if you have purchased an asset of rupees rs 100000 and life of asset is 5 years then in one full financial year depreciation value would be 20K.

Calculation is very simple: Depreciation= purchased value/life of asset. 

For next year same rule apply and depreciation value would be 20K.

It means that rs 1 lakh should become 0 in next 5 year.

Declining balance:  Lets take same example that you have purchased an asset of rupees rs 100000 and life of asset is 5 years. Declining balance calculate based on %, 5 years means 20% right.

Formula : Depreciation= (purchased value) x depreciation %.  It means for first year depreciation would be 20K.

Now the main difference here from Straight Line is that Declining balance will calculate depreciation for next financial year on remaining balance and that is (100000-20000) x 20% = 16k.

this will continue till the value become 0. 

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Runjay Patel - ServiceNow Solution Architect
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[Amit_H]

Thanks @Runjay Patel  for the detailed explanation!