How do I calculate the balance of balance?

Depreciation of the balance reduction requires three items to calculate: the accounting value of the asset, the annual percentage of the depreciation and the value of the rescue. Most depreciation calculations relate to the machines or other types of equipment that the company owns. Decreasing balance reduction is calculated by the value of the accounting value of the asset to reduce less than the annual percentage of depreciation. The accountant then distributes this number by 12 months and publishes this number into the company's main book.

Not all machines or equipment will be worth rescue. If the company decides to keep the equipment until the useful life is reached, the machine is most likely to be eliminated when it is removed. The scrap value is often too low to affect the calculation of the reduction balance.

The annual percentage of depreciation is usually an accounting estimate. Accountants can determine the percentage of use each year according to the company or estimated by the equipment provided for the EUFACTURER. For example, a machine purchased for $ 125,000 (USD) is worth the ConstantEdges of $ 5,000 and lifetime of 10 years on the recommendation of the manufacturer. Accountants estimate the annual percentage of depreciation as 20 percent per year, based on estimates from the manufacturer and the company manager. Depreciation for the first year is $ 24,000 a year ($ 125,000 - 5,000) * 0.20). The annual depreciation of the second year is $ 19,200 ($ 120,000 - 24,000) * 0.20). Each year, the percentage of depreciation is reduced and therefore the depreciation method of equilibrium balancing.

Depreciation allows companies to avoid the cost of the main purchases of equipment. This creates a smoother value of net income because companies must report expenses for their income. General accounting standards usually allow companies to use any depreciation method they consider to be necessary for self -operatives. The advantage of the reduction balance method is that it allows for larger amounts of depreciation to be expenditure previously in the life of the device. This will reduce the company's tax liability earlier than later.

useThe methods of depreciation of the reduction balance are similar to the depreciation methods used for tax purposes. Government tax authorities often require companies to depreciate machinery and equipment faster than other methods. This method of depreciation is also a method of lowering balance, while government tax authorities provide a life for different classes of assets. This creates a universal method for depreciation to ensure that all companies follow the basic rules for reporting tax liabilities. Companies may have to create a reconciliation method between their accounting method and the tax method to ensure that there are no inaccuracies between the two methods.