Decreasing depreciation balance method: example, calculation formula, pros and cons

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Depreciation charges are one of the most important accounting processes in a company. Due to depreciation, the value of acquiring fixed assets and intangible (intangible) assets is extinguished. In addition, depreciation is included in the cost item and can reduce the taxable base. Therefore, depreciation, one way or another, is charged by all firms, regardless of the taxation system that they use. This article will discuss the definition of this concept, postings for its transfer, options for transferring depreciation, the difference in deductions in accounting for accounting and taxes, transferring the balance to decrease option, the advantages and disadvantages of this option, and an example of depreciation using the reducing balance method.

Definition of depreciation and the meaning of its transfer

Depreciation is the process of monthly allocation of the acquisition of fixed assets and intangible assets to accounts 02 and 05. In the simplest terms, its meaning isthe fact that the purchase price of the above assets cannot be extinguished at a time, since these amounts are attributed to the costs of the company's core activities. All such amounts should eventually be included in the price of the finished product. Since fixed assets and intangible assets are expensive things, the firm cannot transfer the price of their purchase to the cost of goods, work or services immediately. The depreciation process allows you to pay off the cost of their purchase gradually.

In firms with a general taxation system, these deductions occur every month according to one of the four transfer options. Under the simplified taxation system (special regime), the periods and method of transferring depreciation are slightly different, but it is still there.

Depreciation transfer transactions

Transfer transactions may look different, depending on the situation and where exactly the asset is used.

Dbt 08 Kdt 02 - for the object used in construction and reconstruction on the territory of the company.

Dbt 20 Cdt 02 - for the object used in the main production.

Dbt 23 Kdt 02 - for the object used in auxiliary production.

Dbt 25 Kdt 02 - for the general production facility.

Dbt 26 Kdt 02 - for a general economic facility.

Dbt 29 Kdt 02 - for the object used in service production.

Dbt 44 Kdt 02 - for an object used in trade.

Dbt 79.1 Kdt 02 - for an object transferred from the main company to a branch or,vice versa, from a branch to the main company.

Dbt 83 Kdt 02 - an increase in the object if its price has changed after the revaluation.

Dbt 91.2 Kdt 02 - for the object that was leased.

Dbt 97 Kdt 02 - for the object, if it is used in work, the costs of which are regarded as deferred costs

In these transactions, account 02 was used. But account 05 can also be used instead.

Depreciation methods for fixed assets and intangible assets

In accounting under the general taxation system, there are only four transfer options. Linearly, by the value of the sum of the numbers of years of the useful life period, in proportion to the volume of the product produced, and depreciation is calculated using the reducing balance method. An example of the simplest enumeration option is linear, so this method is used more often than others. The firm must choose one of the transfer methods and confirm this choice by fixing it in the accounting policy. In the future, the transfer will be made only for one selected option. The frequency of transfers is strictly regulated and equals one month.

If under the system of general taxation the periods of depreciation transfer are determined by the current legislation, then under a special regime, the company can choose the time of transfer itself. The option, which is the answer to the question of how to calculate depreciation under a special regime, is very simple. The value of the price of the purchased object is divided in equal shares into three, two or one quarter. Allthe value of the purchase is extinguished for the year. If the object was purchased in the first quarter (quarter) of the year, then the value of the price is distributed over the next three quarters. If the purchase was made in the second quarter, then - for the next two. If the firm acquired the asset at the end of the year, the entire purchase amount can be repaid immediately. As can be seen from the above, there are no options and special formulas for calculating depreciation under the special regime as such.

Transfer of depreciation in accounting and taxes

Important point. To find out the total value of the taxable base, other methods of depreciation of fixed assets and intangible assets are applied. In this case, the firm is given the opportunity to choose from only two options: linear deduction and non-linear. When choosing different transfer options in accounting and tax accounting, discrepancies may appear. The linear transfer option in tax accounting is identical to linear depreciation in accounting.

When accounting for depreciation, any object with a purchase value of more than 40,000 rubles is put, and when accounting for taxes, in order to determine depreciable items, you must use OKOF. This directory contains all types of objects that should be subject to depreciation, and this list is updated periodically. It is necessary to track these changes in order to avoid various problems with the tax service.

In accounting, depreciation must continue to be charged, even if the item of property, due to somereasons can't work. When accounting for taxes, if this happens, depreciation on the object is suspended.

Remittance of depreciation by the reducing balance option

In the case of enumeration in this way, special coefficients are used. In addition, the calculation must be carried out from the residual value of the purchase of the object. Otherwise, the calculation of the reduced balance option is identical to the calculation of depreciation using the straight-line method. The firm can choose coefficients - one, two or three. Below is the formula for calculating the transfer of depreciation by the reducing balance option and the procedure for calculating.

1. Depreciation rate=(1/useful life)100%multiplier.
2. Depreciation=original pricedepreciation rate. That is, the depreciation amount for the first month of using the item of property will be obtained.
3. Residual price. Original price - depreciation.
4. Depreciation=residual pricedepreciation rate (to get the value for the second and subsequent months).

Advantages and disadvantages of transferring depreciation by the reducing balance option

Pay attention. Before considering an example of declining balance depreciation, let's highlight the advantages and disadvantages of this technique. What does it mean? The option of a decreasing balance due to the unevenness of the values \u200b\u200bthat it gives in the calculations is the fastest option for extinguishing the price of an object. But, the downside is that itCannot be used for some categories of items. These include:

• passenger cars, except for vehicles for official purposes;
• interior stuff;
• objects with a period of use less than 3 years;
• special objects created for the manufacture of special products.

Example of declining balance depreciation

The company purchased a piece of property for 180,000 rubles. Its useful life is 5 years. As a coefficient for depreciation, the company chose the value 2.

1. Depreciation rate=(1/60)100%2=3.34%.
2. Depreciation=180,0003, 34%=6012 rubles. in the 1st month of transfer.
3. Residual value=180,000 - 6012=173,988 rubles.
4. Depreciation=173,9883, 34%=5811, 20 rubles. in the 2nd and following months.