OK, so welcome back and time to learn and a very important method of deputization, which is called
double declining method.
So basically double declining method is very much similar to declining balance method.
It is very much similar to declining Bellus method.
The only difference is that the rate of deposition's will be doubled in this matter.
But one thing to add here is that the rate of deputization will be calculated in the way it is calculated
for a straight line matter.
And that is the only similarity with the straight line.
The rest of the method is similar to declining balance.
What does that mean?
Let us take a look at an example.
Let us say we have an asset that we purchased for a million dollars.
The salvage value is two hundred thousand dollars and a life is five years.
Now, let us first of all calculate the rate of deputization.
If you have to calculate the hundred percent of the depreciable amount and you have to divide that over
five years, I'm one hundred percent over five years.
That means if I can just add a percentage sign here 100 percent over five years, that will be just
the percentage sign here.
OK, that will be 20 percent per annum.
Right.
So the rate will be 20 percent.
But here we have to use to double the rate that is 40 percent.
So I'm going to use 40 percent in this case because we will double that.
So I'm talking about that again.
Let me repeat that.
So the first thing is that I have to calculate the rate using straight line style.
That is 100 percent of the asset over the life that is five years and that give me the rate of 20 percent.
And then I have just doubled it to make it 40 percent here because I have to use a of it.
Right.
So not the rest of the working style will be like declining balance.
And how do we do that?
We will see net book value at the beginning of the year and then depreciation for the year and the net
book value at the end of the period.
Right.
So let's talk about the year one, first year one and then do.
And then three, four and five, we are going to work for five years, for the first year, the net
book value is the same as costs.
I'm going to use the cost here and then depreciation rate will be 40 percent.
So I would say equals this 40 percent year.
And multiply that with the net book value at the beginning.
That is going to be this one.
And then that that would be the net book value at the end of the period after deducting the net book
value at the beginning minus deputization charge for the year.
OK, so before I copy paste, let me make sure that I have applied the references accordingly.
So please unlock this deputization here.
It should be absolute reference.
It will remain as absolute.
This B10 will be the relative and then this one should also be relative.
Right.
So I will just copy and paste all of that here in all five years.
And now all I need to make up I need to give need to provide to you two, three, four and five is basically
the net book value at the beginning of the year and net book value at the beginning of your two is basically
nine book value your one.
So we'll just reference it like that.
And now I will just copy and paste that all five years and you can see that we have no deputization
charge for each year one five starting from four hundred million to two forty one forty four.
It is four hundred and fifty one thousand eight forty.
So why use double decline.
Basically the purpose of using double decline is to charge the highest possible deputization in the
initial years and definitely where the productivity of the asset is very high in the initial years and
then it falls dramatically.
We should be using this one double decline method.
Okay, so you can use this long approach or you can use this short Microsoft Excel formula that is here
and that is basically due to be double defined.
Balance equals cost, salvage life, period, and no cost.
We know that what it costs to salvage, we know life and the period as well.
The factor is basically that you want to double or you want to apply a triple factor or four times you
can give the factor accordingly.
By default, the factor will be too.
But if you like to change that to three, four, five, you can do that as FLEXCEL has given you a bit
of the option like that.
Okay, so I will just calculator deputization now here.
So I will say.
Equals the and then cost.
I'm sorry that goes here and then salvage that is here.
And then life, that's your.
And then, period, that is I'm going to work for one for now and then factor, well, you can give
the factor of two, but by all the factors, double decline, as do so, I will ignore the factor for
now.
I will show you it later in this lecture.
So I will just ignore the factor for the record and I will say press enter and that is four hundred
thousand.
Now that was a deposition charge for your one.
Before I copy and paste that to five years, I will just make sure that I have logged the cells accordingly.
So yes, cost has to be logged.
Salvage.
Yes.
Life, yes.
And then.
And then period.
No, please don't drop the period because it has to be ready when I move forward.
You should be going to your two, three, four and five.
So I will press enter and I will copy and paste that to all five years.
And now you can see that the deputization charge in year one, two and three is equal to what we have
calculated here.
That is absolutely great.
Right.
But year four is sixteen thousand or nothing in the year five.
And that is a bit of a, you know, question mark.
What is going on.
So basically, if I can show you something, you can see here that the cost of the asset was a million
dollar and the salvage was eight hundred thousand.
Right.
So the total amount of deputization should have been eight hundred thousand maximum.
But what you have done here is that you have like four year one and then that makes it to six sixty.
And then this basically increases the amount of deputization, if I can, this summit for you, you
will see that how much deputization have you charge in five years?
And that is basically a mistake here.
So what we need to do, we need to make sure that the total amount is equal to eight hundred thousand.
So I'm going to delete your four and five here and you will see that once you have applied the deposition
and your one, two and three, the only amount that you can charge any of for is eight hundred thousand
minus deposition already applied.
That was sixteen thousand and that sorry, not one sixty.
That is sixteen thousand and it is zero in year five you have to zero and that makes it eight hundred
thousand.
Right.
So the total deposition in your one, two, three, four and five is eight hundred thousand.
That is basically we need to take care of the stored amount here in our manual working.
But if I go back and do the Will Excel Formula X, the formula has already taken care of that and Excel
has automatically put the right deposition in each year one to five.
And you can see that four hundred in your one to fourteen year to one four for your three year for sixteen
thousand.
And in year five, no deposition.
So you can simply use this formula to calculate your deposition.
One.
A few more things I need to show you before I move forward.
And first of all, you can notice that I had not given the factor, but if I do give the factor of two
here, the answers won't change.
I told you that by default, those two as well.
So answers won't change.
But if I can just show you the other factors, if I copy and paste here, first of all, I have to correct
the formula.
So all the cells were not except one.
So I have to make sure that this one is also given correctly.
This is not written.
This should be B nine and it is a four thousand four hundred thousand and you can actually change it
to any other factor.
For example, if I say.
I can make it one point five four now, so if two was four hundred thousand, you can see it at one
point five will be two hundred thousand.
If I press enter, you can see that text has automatically lifted the balance accordingly.
Copy and paste to Also's and Excel will work out accordingly so you can give the factor.
If you are not exactly working on the table in accounting, that is acceptable.
You just have to be consistent in your deposition method.
And that deposition method should be applied across all the assets of the court.
But you can choose any other factor.
So that is the decline method.
And actually this method is more sophisticated than our approach.
We have to do some work here.
This one, the formula will take care of everything.
I hope that was helpful.