C.

DECLINING BALANCE METHOD - this method is sometimes called the constant

percentage method or the Matheson Formula, it is assumed that the annual cost of
depreciation, is a fixed percentage of the salvage value at the beginning of the year. The
ratio of the depreciation in any year to the book value at the beginning of that year is
constant throughout the life of the property and is designated by k, the rate of
depreciation.
*** This method does not apply, if the salvage value is zero.
- With this formula, a property can never depreciate to zero value

dn = Co(1-k)n-1 k = kCn-1 depreciation during the nth year

Cn = Co (1-k)n = Co book value at the end of nth yr

Dn = Co - Cn total depreciation during the nth yr

k = 1- =1- rate of depreciation = constant ratio

CL= Co (1-k)L

Yr Book value at the Depreciation during Book value at the end of the
beginning of the year the year year
1 C0 d1 = kC0 C1 = C0(1-k) = C0 - d1
2 C1 = C0 (1-k) d2 = kC1 C2 = C0(1-k)2 = C1 – d2
3 C2 = C0 (1-k)2 d3 = kC2 C3 = C0(1-k)3 = C3 – d3
………… ………………….. ……………… ………………
……….
N C0 (1-k)n-1 dn = kCn-1 Cn = C0(1-k)n = Cn-1 - dn
…… ……………… ………………
L C0 (1-k)L-1 dL = kCL-1 CL = C0(1-k)L = CL – dL

Examples:

1. A machine costing P720,000 is estimated to have a life of 10 years. If the annual rate of
depreciation is 25%, determine the total depreciation using a constant percentage of the declining
balance method.

Given: Co = 720,000 L = 10 k= 25% D10=?

Solution:
D10 = Co – C10 but: C10 = Co (1-k)n = 720,000(1-0.25)10 = 40,545.73
D10 = 720,000 – 40,545.73
D10 = 679,454.27

2.A machine costing P45,000 is estimated to have a salvage value of P4,350 when retired at the
end of 6 years. Depreciation cost is computed using a constant percentage of the declining book
value. What is the annual rate of depreciation in %?

Given: Co = 45,000 L=6 k= ? CL= 4,350

Solution:

k = 1- =1- = 1-

k = 32.35%

3. A radio service panel truck initially cost P56,000.00 Its resale value at the end of the 5 th year
of the useful life is estimated at P15,000.00. By means of the declining balance method,
determine the depreciation charge for the second year.

Given: Co = 56,000 Resale value = 15,000 L= 5 d2= ?

Solution:

d2 = Co(1-k)n-1 k = kCn-1 but: Cn = Co (1-k)n & k=1-

k=1- = 0.2316 & C1= 56,000 (1-0.2316)1 = 43,030.4

d2 = Co(1-k)n-1 k = 56,000 (1-0.2316) (0.2316) = 9965.84 OR

d2 = 0.2316( 43,030.4) = 9965.84

D. DOUBLE DECLINING BALANCE METHOD - this method is very similar to the

declining balance method except that the rate of depreciation k, is replaced by 2/L.
- the book value for this method can never become zero. The depreciation cost in any yr is a
constant ratio of the book value at the beginning of the year

dn = Co(1- )n-1

Cn = Co (1- )n
CL = Co (1 - )L

Illustrative Example:

1. Determine the rate of depreciation, the total depreciation up to the end of 8 th yr and the book
value at the end of 8th yrs for an asset that costs P15,000.00 new and has an estimated scrap value
of P2,000.00 at the end of 10 yrs by
a. the declining balance method; and
b. double declining balance method.

Given:
n=8 Co = 15,000 CL = 2,000 L = 10

Solution:
a.) Declining balance method

rate of depreciation; k = 1 - =1- = 0.1824 //ans.

Book value; C8 = Co (1-k)n = 15,000 (1-.18)8 = 2995.15 //ans.

Total depreciation at 8 yr; D8 = Co – C8 = 15,000 – 2995.15 = P12,004.8 //ans.

b.) Double declining Balance

rate of depreciation; k = = = 0.2 //ans.

Book value; C8 = Co (1- )n = 15,000 (1- )8 = P2,516.58 //ans.

Total depreciation at 8 yr; D8 = Co – C8 = 15,000 – 2,516.58 = P12,483.42 //ans.

2. An equipment has a first cost of 20,000 and a salvage value of 1,000 at the end of 10yrs.
a. Determine the book value after 6 yrs using declining balance method.
b. What is the depreciation after 3 yrs?
Given:
C0 = 20000 CL = 1000 n=6 L = 10
Solution:
a. Cn (1-k)n where; k = 1 - =1- = 0.258

C6 = 20,000 ( 1 – 0.258)6
= 3,314.45 ans.

b. d3 = C0 (1-k)n-1 k = 20,000 (1-0.258)3-1 (0.258) = 2,843.79 ans.

3. A certain type of machine losses 10% of its value each year. The machine cost P2,000
originally. Make out a schedule showing the yearly depreciation, the total depreciation
and the book value at the end of each year for 5 yrs.

Given:
C6 = 2000 CL = 200 n=5

YR Book value at the Depreciation Total depreciation Book value at the end
beginning of yr during the year at the end of the of the year
C0 dn year Cn
Dn
1 d1= kC0 C1 = C0 – d1
C0 = 2000 = 0.10(2000) 200 = 2000 – 200
= 200 = 1800
2 d2= kC1 = d1 + d 2 C2 = C1 – d2
C0 (1-k) = 1800 = 0.10(1800) = 200 + 180 = 1800 – 180
= 180 = 380 = 1620
3 d3= kC2 = 380 + 162 C3 = C2 – d3
C0 (1-k)2 = 1620 = 0.10(1620) = 542 = 1620 – 162
= 162 = 1458
4 d4= kC3 = 542+145.8 C4 = C3 – d4
C0 (1-k)3 = 1458 = 0.10(1458) = 687.8 = 1458 – 145.8
= 145.8 = 1312.2
5 d5= kC4 =687.8 + 132.22 C5 = C4 – d5
C0 (1-k)4 = = .10(1312.2) = 819.02 = 1312.2 – 131.22
1312.2 = 131.22 = 1180.9
 3. An equipment costs P500,000 and has a salvage value of P25,000 after its 25 years of
useful life. Using double declining balance method, what will be the book value of the
equipment the end of 8 years?
Given: Co = 500,000 CL = 25000 n = 8 L = 25

Book value; C8 = Co (1- )n = 500,000 (1- )8

Book value; C8 = P256, 609.44

E. SUM-OF-THE-YEARS’-DIGITS (SOYD) METHOD

- Depreciation during any yr is charged on the basis of actual service rendered by the property
during the year.
- It is used in certain cases for computing the depreciation of public utility equipment like taxis,
buses, commercial planes. etc

Let: dn = depreciation charge during the nth yr

= (depreciation factor)(Total depreciation)

= Co - CL)
OR

= (Co-CL) where: Sum = (1+L)

Legend:
L = economic life
n = any period before L

Example: for a property whose life is 5 yrs.

YR Yr in Reverse Depreciation Depreciation during the

Order Factor Yr
1 5 5/15 d1 = (5/15)( Co - CL)
 2 4 4/15 d2 = (4/15)( Co - CL)
3 3 3/15 d3 = (3/15)( Co - CL)
4 2 2/15 d4 = (2/15)( Co - CL)
5 1 1/15 d5 = (1/15)( Co - CL)
Σ of digits =
15

Total depreciation after 5 yrs; D5 = d1 + d2 + d3 + d4 +d5

= (Co-CL)

Book value after 5 yrs; C5 = Co – D5

Illustrative Problem:
1. A structure cost P12,000.00 new. It is estimated to have a life of 5 yrs with a salvage
value of P1,000.00. Determine the book value at the end of its life, the depreciation
during the 3rd yr and the book value at the end of 3 yrs..
Given:
Co = P12,000 L=5 CL = P1,000 n=3

sum = =1+2+3+4+5 = 15

Solution:
Book value at the end of its life; C5 = Co – D5

but: D5 = (Co-CL) = (12,000-1,000){ } = P11,000

Therefore; Book value at the end of its life; C5 = 12,000 – 11,000 = P1,000 //ans.

Depreciation during 3rd yr = (Co-CL) = (12,000-1,000) = P2,200 //ans.

Book value at 3 yrs; C3 = C0 – D3

 D3 = (Co-CL) = (12,000-1,000){ } = P8,800

D3 = 12,000 – 8,800 = 3,200.00 ans.

2. An asset is purchased for 120,000.00 Its estimated economic life is 10yrs, after which it
will sold at 12,000.00. Find the depreciation for the first year using SYD. What is the
book value after 4 yrs.

Given:
Co = P120,000 L =10 CL = P12,000 n=4

sum = 1+2+3+4+5+6+7+8+9+10 = 55

sum = (1+10) = 55

Solution:

a. d1 = (C0 – Cl )( ) = 120,000 – 12,000( ) = 19,636.36 ans.

b. D4 = (Co-CL) = (108,000)( ) = 66,763.64

C4 = C0 – D4 = 120,000 – 66,763.64 = 53,235.6 ans.

N K d(C0 – Cl)k
1 10/55 108,000 ( 10/55) = 19636.36
2 9/55 108,000 ( 9/55) = 17,672,73
3 8/55 108,000 ( 8/55) = 15,709.1
4 7/55 108,000 ( 7/55) = 13,745.45
5 6/55 108,000 ( 6/55) = 11,781.82
6 5/55 108,000 ( 5/55) = 9,818.18
7 4/55 108,000 ( 4/55) = 7,854.54
8 3/55 108,000 ( 3/55) = 5,890.91
9 2/55 108,000 ( 2/55) = 3,927.27
10 1/55 108,000 ( 1/55) = 1,963.64
 3. An asset is purchased for P9,000. Its estimated life is 10 years, after which it will be sold
for P1,000. Find the book value during the third year if the sum-of-the-year’s digit
(SOYD) depreciation is used.
Given: Co = P9,000 L =10 CL = P1,000 n=3
Solution:

C4 = C0 – D4 but: D4 = (Co-CL) and Sum = (1+L) = (1+10) = 55

D4 = (9,000 – 1,000)[ ] = 3,927.27

C4 = 9,000-3,927.27
C4 = P5,072.73
4. A company purchases an asset for P10,000.00 and plans to keep it for 20 years. If the
salvage value is zero at the end of the 20 th year, what is the depreciation in the third year?
Use the sum-of-the-years method
Given:
Co = P10,000 L =20 CL = 0 d3 = ?
Solution:

d3 = Co - CL) where: Sum = (1+L) = (1+20) = 210

d3 = (10,000 – 0)

d3 = 857.14

5. The corporation purchased a machine for P1 million. Freight and installation charges
amounted to 3% of the purchased price. If the machine shall be depreciated over a period of 8
years with a salvage value of 12%. Determine the depreciation charged during the 5 th year
using the sum of the years digit method.
Given:
 Co = P1,000,000 + 3%(1M) = 1,030,000.00 n=8
CL = 12%(1,30,000) = 123,600 d5 = ?
Solution:

d5 = Co - CL) where: Sum = (1+L) = (1+9) = 36

d5 = (1,030,000 – 123,600)

d3 = 100,711.11

WHAT DEPRECIATION SHOULD BE USED?

1. An engineer bought an equipment. It was invoiced from Japan CIF Manila at
250,000.00. Brokerage, bank arrastre fees, custom’s duties, permits, etc a total of
120,000.00 At the end of 10 years, he expects to sell it for 50,000.00. Prepare a
depreciation schedule for each of the following methods:
a. Straight line formula c. Matheson method
b. Sinking fund method at 12% d. SYD method
Given:
C0 = 250,000 + 120,000.00 = 370,000.00
CL = 50,000.00 L = 10

a) Straight line method

d= = = 32,000.00

Book value at the Book value at the end of the year;

Depreciation;
YR beginning of the Cn = Cbeginning – depreciation OR
D
year Cn = Co - nd
1 C0 = 370,000.00 32,000.00 C1 = 370,000 – 32,000 = 338,000.00 OR
 C1 = 370,000 - (1*32,000) = 338,000.00
C2 = 338,000 – 32,000 = 306,000.00 OR
2 C1 = 338,000.00 32,000.00
C2 = 370,000 - (2*32,000) = 306,000.00

C3 = 306,000 – 32,000 = 274,000.00 OR

3 C2 = 306,000.00 32,000.00
C3 = 370,000 - (3*32,000) = 274,000.00

C4 = 274,000 – 32,000 = 242,000.00 OR

4 C3= 274,000.00 32,000.00
C4 = 370,000 - (4*32,000) = 242,000.00

C5 = 242,000 – 32,000 = 210,000.00 OR

5 C4 = 242,000.00 32,000.00
C5 = 370,000 - (5*32,000) = 210,000.00

C6 = 210,000 – 32,000 = 178,000.00 OR

6 C5 = 210,000.00 32,000.00
C6 = 370,000 - (6*32,000) = 178,000.00

C7 = 178,000 – 32,000 = 146,000.00 OR

7 C6 = 178,000.00 32,000.00
C7 = 370,000 - (7*32,000) = 146,000.00

C8 = 146,000 – 32,000 = 114,000.00 OR

8 C7 = 146,000.00 32,000.00
C8 = 370,000 - (8*32,000) = 114,000.00

C9 = 114,000 – 32,000 = 82,000.00 OR

9 C8 = 114,000.00 32,000.00
C9 = 370,000 - (9*32,000) = 82,000.00

C10 = 82,000 – 32,000 = 50,000.00 OR

10 C9 = 82,000.00 32,000.00
C10 = 370,000 - (10*32,000) = 50,000.00

b) Sinking fund method

d= = = = 18,234.9325
 Dn = d(F/A, i%, n) = d[

Book value at the Accrued Depreciation; Book value at the end of the
beginning of the
YR year;
year; Dn = d[ C0 – Dn
C0

D1 = 18,234.9325[ C1 = 370,000 – 18,234.9325

1 370,000.00
= 351,765.0675
= 18,234.9325
C2 = 370,000 – 38,658.0569
D2 = 18,234.9325[
2 370,000.00 = 331,341.9431

= 38,658.0569
C3 = 370,000 – 61,531.9562
D3 = 18,234.9325[
3 370,000.00 = 308,468.0438

= 61,531.9562
C4 = 370,000 – 87,150.7235
D4 = 18,234.9325[
4 370,000.00 = 282,849.2765

= 87,150.7235
C5 = 370,000 –
D5 = 18,234.9325[
5 370,000.00 115,843.7428
= 254,156.2572
= 115,843.7428
C6 = 370,000 –
D6 = 18,234.9325[
6 370,000.00 147,979.9244
= 222,020.0756
= 147,979.9244
C7 = 370,000 –
D7 = 18,234.9325[ 183,972.4479
7 370,000.00
= 186,027.5521
= 183,972.4479
C8 = 370,000 –
D8 = 18,234.9325[
370,000.00 224,284.0741
8
= 145,715.9259
= 224,284.0741
 C9 = 370,000 –
D9 = 18,234.9325[
370,000.00 269,433.0955
9
= 100,566.9045
= 269,433.0955

C10 = 370,000 –
370,000.00 D10 = 18,234.9325[ 319,999.9995
10
= 50,000.00
= 319,999.9995

c) Matheson Formula

k=1- =1- = 0.18139

Book value at the

Depreciation during the year; Book value at the end of the
beginning of the
YR dn = kCn-1 OR year;
year;
dn = Co (1-k)n-1 k Cn = C0(1-k)n = Cn –dn
C0
d1 = kC0 = 0.18139 ( 370,000) C1 = 370,000.00 – 67,114.3
1 C0 = 370,000.00
= 67,114.3 = 302,885.7
d2 = kC1 = 0.18139(302,882.7) C2 = 302,885.7 - 54,939.8929
2 C1 = 302,885.7
= 54,939.8929 = 247,945.8071
d3 = kC2 = 0.18139 C3 = 247,945.8071 –
C2
3 (247,945.8071) 44,974.8899
=247,945.8071
= 44,974.8899 = 202,970.9172
d4 = kC3 = 0.18139 C4 = 202,970.9172 –
C3
4 (202,970.9172) 36,816.8946
=202,970.9172
= 36,816.8946 = 166,154.0226
d5 = kC4 = 0.18139 C5 = 166,154.0226 –
C4
5 (166,154.0226) 30,138.67816
=166,154.0226
= 30,138.67816 = 136,015.3444
d6 = kC5 = 0.18139 C6 = 136,015.3444 –
C5
6 (136,015.3444) 24,671.8233
=136,015.3444
= 24,671.8233 = 111,343.5211
d7 = kC6 = 0.18139 C7 = 111,343.5211–
C6
7 (111,343.5211) 20,196.60129
=111,343.5211
= 20,196.60129 = 91,146.9198
 d8 = kC7 = 0.18139 C8 = 91,146.9198 –
8 C7 =91,146.9198 (91,146.9198) 16,533.1397
= 16,533.1397 = 74,613.7800
d9 = kC8 = 0.18139 (74,613.78) C9 = 74,613.78 – 13,534.1935
9 C8=74,613.78
= 13,534.1935 = 61,079.586
d10 = kC9 = 0.18139 C10 = 61,079.586 – 11,079.226
10 C9 = 61,079.586 (61,079.586) = 50,000.36
= 11,079.226

d) SYD Method

Σ year = 1+2+3+…. = 55 OR Sum = (1+10) = 55

Co – CL = 370,000 – 50,000 = 320,000

dn = (Co – CL) OR dn = (Co – CL)

Factor; Depreciation during

Book value at the the year; dn
beginning of the dn = (C0 – CL) x factor Book value at the end of the year;
YR
year; Cn = (1-k)n = Cn –dn
C0 dn = (Co – CL)

d1 = (320,000) C1 = 370,000.00 – 58,181.818

1 C0 = 370,000.00
= 311,818.1818
= 58,181.818
C2 = 311,818.1818-52,363.636
d2 = (320,000) = 259,454.5454
2 C2 = 311,818.1818
= 52,363.636
C3 = 259,454.5454– 46,545.454
d3 = (320,000) = 212,909.0909
3 C3 =259,454.5454
= 46,545.454
C4 = 212,909.0909– 40,727.272
d4 = (320,000) = 172,181.818
4 C4 =212,909.0909
= 40,727.272
C5 = 172,181.818– 34,909.0991
d5 = (320,000) = 137,272.7271
5 C5 =172,181.818
= 34,909.0991
 C6 = 137,272.7271– 29,090.909
d6 = (320,000) = 108,181.818
6 C6 =137,272.7271
= 29,090.909
C7 = 108,181.818– 23,272.727
d7 = (320,000) = 84,909.0907
7 C7 =108,181.818
= 23,272.727
C8 = 84,909.0907– 17,454.545
d8 = (320,000) = 67,454.545
8 C8 =84,909.0907
= 17,454.545
C9 = 67,454.545– 11,636.363
d9 = (320,000) = 55,818.181
9 C9 =67,454.545
= 11,636.363
C10 = 55,818.181– 5,818.181
d10 = (320,000)
10 C10 = 55,818.181 = 49,999.99 50,000.00
= 5,818.181

2. A machine cost 7,000 last 8 years and has a salvage value at the end of life of 350.00.
Determine the depreciation charge during the 4th year and the book value at the end of 4
years by the following:
a. Straight line method
b. Declining balance method
c. SYD method
d. Sinking fund method with interest at 12%.

Given:
Co = 7,000 CL = 350 L=8 n=4

a) Straight line method

d4 = = = 831.25
C4 = Co – nd = 7,000 – 4(831.25) = 3,675.00

b) Declining balance method

k=1- =1- = 0.3123

d4 = C0(1-k)n-1 k = 7,000 (1-0.3123)3 (0.3123) = 711.00

 C4 = C0(1-k)n = 7,000(1- 0.3123)4 = 1,565.65

c) SYD Method

Sum = (1+8) = 36 OR Σ year = 1+2+3+…. = 36 8+7+6+5 = 26

d4 = (7,000-350) = 923.611 OR

d4 = (Co – CL)= (7,000- 350) = 923.611

C4 = CO – D4

But: D4 = (Co – CL) = (7,000-350) = 4,802.77 OR

D4 = (Co – CL) = {7,000-350} = 4,802.77

C4 = 7,000 – 4,802.77 = 2,197.2

d) Sinking fund Method at 12%

d4 = = = = 541.00

C4 = CO – D4

But: D4 = d[ = 541.00[ = 2,586

C4 = 7,000 – 2,586.00 = 4,414.00

3. An industrial plant bought a generator set for 90,000. Other expenses including
installation amounted to 10,000.00. The generator set is to have a life of 17 years with a
salvage value at the end of life of 5,000.00. Determine the depreciation charge during the
13th year and the book value at the end of 13 years by
a. Declining balance c. sinking fund at 12%
b. Double declining d. SYD method
Given:
Co = 90,000 + 10,00 = 100,000 CL = 5,000 L = 17 n = 13
Unknown: d13 and C13

a) Declining balance method

 k=1- =1- = 0.1616

d13 = C0(1-k)n-1 k = 100,000 (1- 0.1616)12 (0.1616) = 1,949.00

C13 = C0(1-k)n = 100,000(1- 0.1616)13 = 10,118.00

b) Double Declining Balance

d13 = C0 (1 - )n-1 = 100,000 (1- )12 = 2,619.92

C13 = C0(1- )n = 100,000 (1- )13 = 19,649.45

c) Sinking Fund at 12%

d13 = = = = 1,943.39

C13= CO – D13

But: D13 = d[ = 1,943.39[ = 54,471.49

C13 = 100,000 – 54,471.49 = 45,528.51

d) SYD method

Sum = (1+17) = 153 OR Σ year = 1+2+3+…. = 153

d13 = (Co – CL)= (100,000-5,000) = 3,104.57

C13 = CO – D13

But: D13 = (Co – CL) = {100,000 – 5,000} = 88,790.85

C13 = 100,000 – 88,790.85 = 11,209.15