Step 5a - Assume the asset value of the element is $2395. Calculate the "would-be" depreciation of the month by multiplying the asset value by the declining ratio from Step 4 (0.042):

$2395 x .042 = $100.59

Step 5b - Assume the salvage value is $100. Determine if the asset value after depreciation is less than the salvage value by using the following formula:

Asset value of the month ($2395) - Depreciation for the month ($100.59) = $2294.41

Since the $2294.41 (the depreciated asset value) is greater than the salvage value ($100), the asset value for the month is $2294.41. Go to Step 5c. The management server repeats Steps 5a through 5c for 12 months (the delta from Step 2), unless the depreciated asset value reaches the salvage value, or 0 if the salvage value is not specified.

Calculating Double Declining Balance

The Double Declining Balance method and the Fixed Declining Balance are very similar. The difference is that instead of using the depreciation ratio determined by (1.0 / life), the management server doubles the ratio to increase the rate of depreciation. This provides for a more realistic depreciation when your asset tends to lose its value in the early part of its life. For instance, a new car’s blue book value decreases dramatically once it is sold and driven off the lot of the car dealership.

These instructions describe how the management server performs the double declining balance calculation. An example is provided for each step, so that you can try the calculations for yourself.

1.The management server rolls back the purchase date to the beginning of the purchase month. If the purchase date is later than today (for example, a future purchase), then the purchase date is rolled back to today.

Example: Assume the purchase date of an element is January 15, 2003. The management server adjusts the purchase date to January 1, 2003, when calculating months to depreciate.

2.It determines the period ending date. This is equivalent to the last day of the previous full month.

Example: Assume today's date is January 9, 2004. The management server sets the period ending to December 31, 2003.

3.The management server calculates the delta between purchase date and the period ending. This determines how many months worth of depreciation amount the management server need to take into account.

Example: Using the examples from the previous two steps, the delta is 12 months (January 1, 2003 - December 31, 2003).

4.The management server takes the user-specified depreciation period and uses it as the life of the asset.

Example: Let's assume the depreciation period is 24 months and that it is also the life of the asset.

5.The management server calculates the declining ratio using this formula: (1.0 / life)*2. This determines the rate at which depreciation should occur each month.

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