 Hello, in this lecture, we'll discuss calculating depreciation using the double declining balance method. We will be able to calculate depreciation using the double declining balance method, create journal entry related to depreciation, explain the effect of recording journal entry related to depreciation on assets, equity, and net income. So you'll recall from prior periods that we have talked about in the adjusting process the recording of the adjusting entry being for depreciation, being a debit to depreciation expense, accreditation related depreciation. We had not talked about how to calculate that depreciation at that time. That depreciation was just given to us and we were thinking about the concept of that adjusting process, what it is doing, reducing the value of the equipment on the books or the book value, and recording the expense over its useful life. We then have looked at the straight line method, which is probably the first method we want to look at because it's usually the first thing that we will think about when we think about this problem related to equipment. What is the problem? Well, if we think about an equipment like this, such as equipment that we purchased for 257.5 and we have a salvage value in this case of 20,000 and a four-year useful life. Now, if we just think of the cost, the question is, well, if we bought the equipment and we expensed it, then the expense would lower net income in the year of purchase and that could really distort the net income, meaning it will make us look a lot worse in the year of purchase than later years, which may not seem correct if we think about it because that equipment is going to help us in future years, in this case four years. So it doesn't really make sense for us to look worse in year one of purchase and a lot better in year two because we just happen to purchase these pieces of equipment in that year that will help us through the next four years. So the logical thing to do would say, well, let's allocate it over its useful life, which in this case would be four years and the straight line method would basically take the this amount minus the salvage, the amount we're going to get at the end, divided by the four years and then just count and then just straight line over, meaning the same amount of depreciation will be expensed each year of its useful life. Now, that would be the most common-sense thing to do. Now, there is an argument to say that, well, maybe we should depreciate more in year one than in year four because the equipment being in year one is usually more productive in that year than in later years and therefore, we want to depreciate more in year one. There could be other incentives for us to want to do that. If we do that, of course, it'll generally make us look worse in year one and better in the final years. But we'll talk about that more in the future in terms of just the accounting practice, in terms of just best practice in terms of reporting the financial statements. The question is, which one of the two will be better in terms of reflecting reality? Reality being, is it true that more depreciation would happen in the first year than in the later years? That's the assumption that's being made in the double-declining method, which we'll talk about in this calculation. So double-declining method, we're going to take the cost, we're going to subtract from it, or I'm sorry, we're going to divide the cost by the number of years in the useful life. What we're first going to look for is the rate of depreciation if we were on a straight line method, not taken into consider the salvage value. So I'm going to calculate this rate two ways. I want to calculate it the long way here and then give you a shortcut to do it just so you can see what we are calculating. So if we take the cost divided by the number of years in the useful life being four, that will give us the straight line depreciation if there was no salvage value. So we're just going to allocate evenly over the four years down to zero, in this case, assuming no salvage value. So keep that in mind, that salvage value is a factor that confuses people between the two methods. We will have the salvage value as a factor, but it will come in at a later time. Then we're going to divide that by the cost, which is the same cost up here, of course, and that will give us our straight line percent if there was no salvage value. So what we're trying to do is say, okay, you know, if we took the cost and multiplied it times what percentage in order to get that straight line rate, meaning if it's four years, of course, if we take the 257.5 and multiply it times 25%, that's how much we're going to depreciate each year to bring it down to zero at the end of its life. Also note that, of course, I put this in the format of a percent. If you put this into a calculator, this number to 64, 375 divided by 257.5, you'll come up with 0.25, which of course is calculated into a percent being 25%. Then we're going to double it because it's the double declining method. So we're just going to multiply times two, and that will give us the double declining rate. So what are we going to do with the double declining rate? We're going to take the cost and multiply it times the double declining rate being 50% rather than the straight line being 25. Now, this will cause confusions later in that a lot of people start to think that the first year all we have to do is double the depreciation, which would be the case just for the first year if there was no salvage value. But if there's salvage value, not necessarily the case, and you want to be careful with things that work sometimes, but not all the time because then you'll start to learn a process that is not always applicable. And that will, of course, cause problems. So notice that most questions will not even ask for the first year. They're going to ask for like the second year because the second year is a little bit more confusing to calculate. And you can't take some of these shortcuts that don't work really in the second year. So keep that in mind as you go. You kind of want to set up a system to have the longer calculation and have it ready, have, you know, your calculation format ready. All right, so this is another way to calculate that same thing and obviously a much shorter way. So I want you to see the comparison in the long format to see how we come up with that straight line rate, why it's a straight line rate and how do we double it? Of course, the short method is just to take one divided by the number of years, which in this case is four. So if it was a three year property would just take one third. If it was a, you know, if it was a seven year property, you take one seventh. And that, of course, would give us that same 0.25 or percentage 25%, then we can double it and we'd come up to our 50%. Just remember, what does that 25% mean? It means that if we took the 257.5 times that rate, that would be the straight line depreciation that we would depreciate over the use flash each year in order to appreciate it down to zero, not down to 20,000. That would be the straight line rate if there was no salvage value, then we're going to double it. Once we have that, then we can start calculating depreciation. Now it's going to be a little bit longer of a method because now we're going to have to calculate depreciation for each year and it will differ. The expense will not be the same. So in the first year, we're just going to take the cost. That's what we bought it for, of course, times the double declining rate, which we calculated to be 50%. And that will give us the 128, 750 for the depreciation in year one. So year one's pretty easy to calculate once you get the rate. And so just make sure you have a system to get the rate down and then year one calculate that out. Then if we looked at our table, same as we looked out on the straight line. But now the depreciation expense for the first year is much higher. It's 128, it's not exactly double because remember that salvage value kind of throws that off, but it's much higher. And then the cost is going to be the cost less the accumulated depreciation, which gives us the book value of 128, 750. And of course, we're taking 50% being for the four year property. So we're left with a book value of half after the first year. So that's a much larger number. If we look at it in terms of the journal entry, again, the format of the journal entry is going to be much the same. But of course, the number has now changed. And if we look at a trial balance, we've got year one, I'm going to say that we have cash receivables. And then here's the equipment that we put on the books at the cost 257.5. The accumulated depreciation before this adjusting entry being zero. We've got a liability of 10,000 liabilities represented by brackets. And it's orange. And then we've got the capital count being a credit with brackets and we have the revenue being a credit with brackets. The expense has not yet been recorded for this time period. That's what we're going to do. If we take the debits, non bracket numbers minus the credit bracket numbers, we would come up with zero, meaning the debits and the credits are equal. We are in balance and we can see that the sales credit minus the expenses. There's none there left is the 100,000. So this is 100,000 is assuming that all else equal all we've made is 100,000. In this time period, the only expense we are going to consider is depreciation expense. So we can see the effect of it on this transaction. If we record this adjusting entry, all adjusting entries have one balance sheet account, one income statement account. The income statement account will be depreciation. It's an expense expenses have debit balances. We're going to make it go up by doing the same thing to it, which is another debit debit depreciation expense. Credit the balance sheet account, which in this case is accumulated depreciation. Accumulated depreciation is a contra asset has a credit balance. It's going to go up by doing the same thing to it, which in this case is a credit. So if we post that, then we can see what happens. Depreciation goes from zero up in the debit direction to 128,750 from posting this transaction here. And what happens to net income, 100,000 less to 128,750 brings it down to a loss. We're losing in net income by 28,750. So revenue is actually good. The credit is good, less the expense, which kind of is bad means we have a loss, 28,750 in year one. And the credit is going to be going to the accumulated depreciation at zero up in the credit direction to 128,750. Note that we have a credit here in an asset account that's called a contra asset. So why is it a contra asset? Because normally assets have debit balances, and this one has a credit balance. Why does it have a credit balance? Well, because we took the equipment account, and instead of writing down the equipment account directly, we kind of split the equipment account between a seven and an L. We turn the T into a seven and an L in some ways, because we want to tell our reader two things. We want to say, Hey, this is what we bought it for. This is the estimate of what it's gone down by. Therefore, the book value is the debit, less the credit. You can calculate that out. It will come out to 128,750. And we do that because the equipment doesn't go away unlike supplies where we can physically see that the supplies go physically down, thereby backing up the physical deterioration. The equipment, of course, we cannot see, you know, if we have a forklift, we have one forklift still. It's not like we have less than one forklift. But we do know that the value over time should go down and we need to allocate that cost over the time in some way. So if we look at year two, then we're going to do the same type of calculation. We're going to go to year two and we're going to take the cost less the accumulated depreciation prior to the current year. So the accumulated depreciation we have from last year is the depreciation expense up till that point, which was 128,750. So the book value before the current year, before we calculate the depreciation for year two is 128,750. And then we're going to multiply it times the double declining rate being the 50%, which we calculated first off. And that will give us depreciation for year two of 64,375. If we compare that, here's year one and then now here's our year two. So year two depreciation went way down, which is not what happens under straight line. That's what happens in double declining. We're front loading the depreciation in the first year, far less in the second year. Cost is still the same. Book value calculated by the cost less the accumulated depreciation. So the 257.5 minus the 193.125 gives us book value of 64,375. Now, if we look at that in terms of, here's our 64,375 in terms of our accounts, we can see at the beginning of year two or year two before we record the adjusting entries, we have our cash or receivables, the equipment still on the books at 257.5. And the accumulated depreciation is 128,750, what it was after year one. And then we can see down here, we're going to have the same income, meaning that not the same income we made in year one. But we're assuming we made another 100,000 in year two, we performed exactly the same in this model. And then the depreciation expense is zero. Why? Because last time's net income, the income statement accounts being revenue and depreciation got closed out to capital last year. And now we're starting at the temporary account of zero on the income statement accounts. Whereas on the permanent account for the balance sheet, we still have the 128,750 in it. The journal entry is going to be a debit to depreciation expense. It's an adjusting entry. So we debit the income statement accounts, making it go from zero up in the debit direction to 64,375. What does that do to net income? 100,000 revenue less the expense brings net income down from 100,000 to 35,625. This is income credit represented by brackets. That's obviously recorded here with this journal entry. Then we're going to credit accumulated depreciation. So accumulated depreciation is the balance sheet account. It had a credit balance of 128,750. We're going to do the same thing to it. A credit and a credit makes the credit balance go up in the credit direction to 193,125. Same as our table. If we take the debit 257,5 less the credit 193,125, we get the book value 64,375. If we go to year three, now we're going to have to do the same type of calculation. We're in year three now. We got the cost, less the accumulated depreciation. The accumulated depreciation, we are going to have to get from this table or some kind of calculation such as that. So note that you're going to, when you set up a problem like this, they're probably going to ask you for at least year two or year three. And you really want to set up a fairly well organized table so that you can then go back and say and do the later calculations and calculate not just the depreciation expense, but also the accumulated depreciation and the book value. So if you get a format set up, a template that could format any double declining problem and then just be able to change the numbers, that will help you a lot. You want to format it so that you can calculate any of these numbers, meaning the depreciation for any time period, the accumulated depreciation for any time period, and the book value so that you're ready for any type of question that they could ask. So we're going to have to get that 250, 237, and that's going to be the cost, less the accumulated depreciation, which is the 293, 125 gives us a book value before the year three depreciation is calculated. Then we're going to multiply that times the 50% that will give us the depreciation for year three. It's now going down to 32, 188. So if we look at our table, here's where we were at the end of year two, year three looks like this. Depreciation is now, of course, going down. It's front loaded at the end of the day. It'll be the same as it was in the straight line, but you can see that through the period of the four years in this case, it is much different. The cost remains the same and the accumulated depreciation is now the prior year accumulated depreciation plus the current year's depreciation expense to get the 225, 313. Or you can calculate the appreciation up through the use for life, 128, 750 plus 64, 375 plus 32, 188 will also give you the 225, 313. So if we mull that over, the book values, the cost, less the accumulated depreciation, 257, 5 minus the 225, 313 gives us the 32, 188. If we look at that in terms of the table and the chart of accounts, then we can see the value of the equipments on the books for the 257, 5. The accumulated depreciation before this adjusting entry is 193, 125, which is what it was in year two. If we subtract those out, we get the book value of the 64, 375. The 257, 5 minus the credit of 193, 125 gives us the book value of 64, 375. We can see that the revenue, once again, are assuming that we earned the same amount of revenue in year three as we had in year one. And you, too, it's not the same revenue in that it's the same number. What happened is we performed the same in year three as we did in the prior years in this model so that we can have the easiest comparison of the what we're focusing on, which is depreciation expense. So the only expense in this model will be depreciation expense. It is now zero before we record the entry. Why? Because years one and two got closed out in the closing process to the equity section. And therefore net income is just the 100,000 that we earned in year three. So then if we record the transaction, it's an adjusting entry transaction, which has one balance sheet account above the blue line, one income statement account below the blue line. The income statement account is the depreciation expense. Expenses have debit balances. They generally only go up. We make this one go up in the debit direction by the calculated 32, 188. So we debit the 32, 188. We credit the other account. What will the other account be? It's going to be the balance sheet account, a cumulative depreciation in this case. If we post that, then we can see that depreciation goes from zero up in the debit direction to a debit of 32, 188. What does that do to net income? Brings it down 100,000 revenue, less the only expense that we are looking at in this case of depreciation expense being 32, 188, bringing net income down to 67. 813. Once again, this is revenue. The revenue is good. The revenue has a credit balance minus the debit gives us the 67,813. The equipment, the accumulated depreciation goes from a credit 193,125 up in the credit direction by the 32,188. We're doing the same thing to it. A credit and a credit makes it go up to 225,313. What does that do to the book value? The book value is the debit half being the equipment of 257,5 less the credit half being the accumulated depreciation 225,313 given us the book value of 32,188. Once again, why don't we just combine these two accounts? Because we're trying to tell our reader that it's an estimate and I want to tell the reader what the cost was plus what we estimated the depreciation to be. If we combine these two accounts back into a T rather than a seven and an R, which is what we have here, the seven debit half plus the R, the credit half. If we combine them together, we will not be able to show our reader the two numbers and give them both the cost and what we've depreciated it by. So now let's take a look at year four. Now year four is the final year and whatever the final year is, which happens to be year four because that's what we determined the useful life to be, will be strange under the double declining method. And that is because the double declining method is just an estimate. So this really disturbs a lot of people, a lot of people that like math and like accounting want things to work out perfectly. And notice that in accounting, a lot of things are estimates because we're estimating the value of things and it's not a perfect Estimation because obviously no one has a crystal ball and therefore this estimate, the way the double declining balance works, is not perfectly works out in math. Mathematically, meaning the final year, whatever that year may be, in this case year four will basically need to plug in whatever we need to plug in order to bring that final balance down to The salvage value in this case. So just like in the straight line method, we said that there was a floor to the amount that we're going to depreciate. In the double declining method, we have the same floor and it's easiest to see if there was no salvage value. If there was no salvage value and we just thought we're going to depreciate the thing down to zero. And then the book value will be zero and we will stop because it does not make any sense for us to depreciate something and have a negative value for a piece of equipment. Then obviously we would have to stop at zero and that's that's the idea here. The double declining method doesn't work out evenly in that it doesn't exactly stop at zero if we do the same calculation that we had done in the past. So if we took the prior book value times 50% in the final year, it wouldn't exactly leave us with 20,000. That's the problem. In this case, we want to be left with just 20,000. That's the floor instead of zero because that is the salvage value. What is the salvage value that represents the amount that we believe that we can sell the scrap or the equipment for at the end of the useful life. So if the forklift, even if the forklift is completely unusable at the end, we should still be able to scrap it or we believe we will be able to scrap it for a value of 20,000. Therefore, we need to stop depreciating until the book value reaches 20,000 and not go any lower than that. So we have to do a slightly different calculation in year four. Now notice in practice that if you're doing a multiple choice question, they may not always ask for the final year's calculation because you'd have to do a lot that takes a lot of work for a multiple choice question, which is usually. So notice that you might not always be asked for the final year in a multiple choice type format, but you want to be aware that the final year is a different type of calculation. You want to be aware of the fact that you can't calculate something below the salvage or you certainly can't calculate it below the zero. You can't have a book value of negative. So the way we're going to do that then we can take the cost less the salvage value and you'll remember we did this in the straight line method. And that will give us the amount that we want to depreciate over the useful life, which in this case is four years. So if the cost 257.5 and we want it to end up as a book value at the end, which will be the salvage value of 20, that means then we have to depreciate over the life 237.5. Why? Because the 257.5 costs less the accumulated depreciation that we want to be at the end of 237.5 will leave us at the floor of the salvage value, the amount we can sell it for of 20,000 in this case. So this is where we want to be. We want accumulated depreciation to be here as of the end of the last year, which is year four in this case. Where are we at now? Well, if we look at the accumulated depreciation before year four. We are currently at 225.313 and we want to be here. So that means that we're going to subtract these two out. And that means that we need depreciation in the final year of 12,188. Why? Because the 12,188 will bring us to the accumulated depreciation total throughout the life being four years of 237.5. That's what we need in order for the book value of the cost 257.5 less the accumulated depreciation will now be 237.5 to leave us with that book value of 20,000. Remember, in year five, we're going to stop. We may not have lost the forklift if it's a fork. We still have the equipment. It may still be in use, but we will not allocate a cost below the salvage in this case. And we certainly cannot allocate any more cost below the value that we paid for the equipment. So there could be a misstep in terms of our calculation and our estimation. And if it's a large misstep, then we may have to say that there was an error in the estimation and re estimated. But most of the time, like more likely what's going to happen is even if we're still using the equipment, it will have a zero value. We have already allocated the cost. We can't allocate any more cost than we paid for it. And so therefore we're just going to leave it at zero at that time or at this case at the floor of 20,000. So equipment purchase on January 1st. So if we're at year three, the final year, then we'll look like this. So now we have the depreciation of 12,188 that we calculated. We see the front loading of depreciation now going down throughout the four years. We can see that the cost remains the same. And we can see the accumulated depreciation will now be calculated by last year's accumulated depreciation plus the current year's depreciation expense bringing us to the 2,375. Or we can say let's calculate it by adding up the depreciation over the useful life. Year one, year two, year three, year four will be the 128,750 plus the 64,375 plus the 32,188 plus the 12,188 will also give us the accumulated depreciation as of the end of year four being 237,5. If we take the book value, the cost, the 257,5 less the accumulated depreciation 237,5 were left with the book value of 20,000, which is what we want to be left at. Why? Because the 20 value is the salvage value. That's the floor. That's what we believe we can sell it for. So let's see what happens if we do that in terms of our trial balance. Remember the trial balance, here's our 20,000. Here's our worksheet up here. Before we do this adjusting entry, we have equipment of 257,5. We've got accumulated depreciation of 225,313 and we have then a book value of the 32,188. We have the capital account here. We have the income. We're assuming we performed the same in year four as we did in year three. So we earned another 100,000 holding all else equal. The only other thing we're going to look at on the income statement will be the depreciation expense. And therefore it's zero at this point before we do the adjusting process. Why is this zero when this has a credit of 225,313? Because this is a permanent account and this is a temporary account. The income statement account closed out to the equity section and therefore it's zero. We earned another 100,000 in year four and now we're going to record the transaction. It's an adjusting transaction which has one balance sheet account. One income statement account depreciation expense is going to go up in the debit direction. Therefore debit depreciation expense 12,188 by the calculation we did up here. Credit then the balance sheet account accumulated depreciation by the 12,188. If we post that then the debit will go here. Depreciation expense goes from zero up in the debit direction to 12,188. Affect on net income revenue less the expense brings net income down to 87,813. Revenue less the expense down to 87,813. That is revenue. That's not an expense. Revenue is winning the credit's winning over the debit expense. So that is revenue, not a loss. Then on the on the accumulated depreciation we have a credit balance before of 225,313. It's going up in the credit direction by the 12,188 to a credit and a credit are the same thing making it go up to 237,5. If we take the book value 257,5 less the 237,5 accumulated depreciation we get 20,000 which is the salvage value. We're going to stop there because we believe that we can sell it for the salvage value. That is the floor. We can't bring it any lower than the 20,000. And again if even to make the point more clear if the salvage value was not there if we just depreciated it down to zero even if we're still using it we cannot depreciate it below the cost because the whole idea is that we are allocating the cost over the useful life. It's you we can't record an expense that isn't part of the cost. If we're still using it what really happened is our estimate was off and we should have estimated it over a longer life than we did. So we could either go back and try to fix that. But more likely if it's not a very substantial or material difference we're probably just going to leave it at that zero basis tell the reader hey we still have this piece of equipment but it's fully depreciated at this time. You know it's still on the books it's still possibly in use but we've already allocated the cost fully out. Also note that we're you looking at this in terms of one piece of equipment and in real life of course there'd be many pieces of equipment and this account would need to be backed up by a depreciation schedule with those different pieces of equipment calculated in their rates over this fashion. And so much like the accounts receivable account which will be backed up by a subsidiary ledger by a customer we're also going to have to back up the equipment account by the type of equipment when it was purchased how much what's it's useful life how long it's been depreciated. So that is a time consuming area to do that that does take a good deal of work in order to to set that up if we look at the comparison then we can see that year ones year two year three year four we can see that the cost is the same all the way across whether we do it in our calculation method here or within the trial balance we can see that the accumulated depreciation then is going up and not a straight fashion it's it's it's going up at a basically a decreasing rate why because we front loaded the depreciation. So all the depreciation a lot more happened in your one then in your four if we look at the expense we can see that's a lot more happened in your one then in your four what's the effect on net income well in your one if we're assuming once again holding all else equal assuming we made a hundred thousand each year then the expenses the only effect that we're having other than the revenue of a hundred thousand and the expense in your one actually resulted in us reporting a loss even though there's no cash related necessarily to this to this year one equipment we could assume that we paid for it in your one but we could have bought it on account or some other way and it's actually making us have a loss because we front loaded it and then we have income in your two more income in your three and more income in your four assuming once again the same amount of revenue the only difference the only change in this case being the difference in the depreciation expense caused by the double declining method if if we look at the comparison of the methods being straight line and double declining and units of production then we can see under the straight line method remember that if we used the straight line method we would have the same amount of depreciation over the useful life and the net income effect then would be that we would have an even net income over the useful life if all else was equal and we made a hundred thousand in each year and the only changing factor being the depreciation expense whereas of course down here we just looked at that we have a hundred thousand and the depreciation is front loaded and therefore we have a loss and then we have income in later years the effect over the four-year period because it's just a timing difference is that we're end up at the same point in time at the end of the time frame of four years as we would either method so that means that at the end of the time frame we're left with a book value of the two fifty seven five minus the two thirty seven five twenty thousand we're left with the book value of the salvage value over the four-year time period we depreciated the same amount so you might think again why why does it matter if I use one or the other at the end of the day it's the same thing isn't it and at the end of the day it is kind of the same thing but there's a substantial difference between those those time periods so if I was to compare year one and year two the question is is this a fair comparison it should I should I be saying that I actually have a loss in year one and I have revenue in year two simply because this piece of equipment was allocated more in year one and less than year two or is it more appropriate for us to say that we had an uneven distribution because we used in the same piece of equipment for year one and year two and an argument can be made on either side of that you know the even allocation would say well we're still using the piece of equipment a an argument for this method would be that the accelerated method would be that well I get more use out of it in year one than year two so yeah it does make sense for us to allocate more in year one it's more productive piece of equipment in year one than in year two so there is a valid argument to do that in terms of incentives on why people would want to use one or the other notice for accounting for general accounting there may be pressure for people to look better a lot of times they want if they want to look better in the first years they might want to use the straight line because net income is higher and we have the asset being higher for a longer period of time on the front of course for accounting purposes for generally accepted accounting purposes we want to do what makes the best comparison but there could be pressure to look good of course in terms of financial preparation and on taxes of course we have the exact opposite remember the tax code is different than generally accepted accounting or you know accrual principles it'll tell you what kind of you basically have a lot less flexibility but for taxes if we could choose we would probably want to have an accelerated method because we would rather lower net income look worse in year one thereby lowering our taxes that we're going to pay on basically kind of net income in year one and then we'll pay more in later years again the net income will be the same over the for the timeframe but if we can get the money earlier usually that's what we would want to do now we might say that well if we don't really know which one is better why don't we have a method that's more accurate and the method that we usually think is more accurate would be something like units of production why would it be more accurate well similar to driving a car if we want to estimate the loss in value of that car we can divide the car over the useful life the number of years but it might be more accurate for us to divide it by the expected miles it's going to drive or something like that why because the expected miles might be a more significant correlation between the deterioration of the car than just time and that would be similar to a units of production so units of production if we took something like a printer we could say well instead of just taking that printer and dividing it by the useful life in terms of time let's divide it by how many pages the thing says it's going to print over its life on the box and if we do that then we can figure out how much has depreciated each year by counting the pages and then multiply it by this rate that we have decided based on the number of pages over the useful life and that would be considered usually to be more accurate and that's what we're going to talk about next time note that in this problem if we did that more accurate type of method theoretically then it does look like the depreciation in this problem is higher in beginning years than later years not quite as as drastic as the double declining balance but this problem is kind of justifying some reason for the double declining balance being that the equipment could very well be more active more productive in year one than in year four in this case so also want to point out that we could for accounting purposes use different methods rather than double declining we could use 150 declining or any type of accelerated method in the front years to do that as well so double declining is most the most common it's similar to methods that are often used on on the tax code a similar calculation to the tax codes met the methods mandated by the tax code so we are now able to calculate depreciation using the double declining method create journal entry related to depreciation explain the effect of recording the journal entry related to depreciation on assets equity and net income