Corporatefinanceinstitute com 1 The Corporate Finance Institute Accounting For more eBooks please visit

Declining Balance
A declining balance depreciation is used when the asset depreciates 
faster in earlier years. As the name implies, the depreciation expense 
declines over time. To do this, the accountant picks a factor higher than 
one. In a straight line depreciation, the depreciation expense is found 
by multiplying the fair value with 1 / useful life. In this calculation, the 
factor is 1. In a declining balance, the factor can be 1.5, 2 or more. A 
2 factor declining balance is known as a double-declining balance. 
Periodic Depreciation Expense = Beginning Value of Asset x Factor / 
Useful Life.The depreciation expense changers every year, because it 
is multiplied with the beginning value of the asset, which decreases 
over time due to accumulated depreciation. Note that residual value is 
ignored under declining balance.
For example, Company A has a vehicle worth $100,000, with a useful life 
of 5 years. They want to depreciate with the double-declining balance. 
In the first year, depreciation is expense is $40,000 ($100,000 x 2 / 5). In 
the next year, depreciation expense is $24,000 ( ($100,000 – $40,000) * 
2 / 5).

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corporatefinanceinstitute.com
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The Corporate Finance Institute
Accounting
Units-of-Production
Under this method, the depreciation expense per unit produced is 
determined by dividing the fair value less residual value of the asset 
with the useful life in units. This method gives a higher depreciation 
expense when production is high to match the usage of the equipment. 
This method is also most useful for production machinery.
Unit Depreciation Expense = (Fair Value – Residual Value) / Useful Life in Units.
Periodic Depreciation Expense = Unit Depreciation Expense x Units Produced
For example, Company A has a machine worth $100,000 with a residual 
value of $5,000. Production units is 95,000. Thus, unit depreciation 
expense is ($100,000 – $5,000) / 95,000 = $1. In a year, company A 
produces 10,000 units and incurs a depreciation expense of $10,000.

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