Return on Software: Maximizing the Return on Your Software Investment

Declining-Balance Depreciation

Declining-balance depreciation assumes that the value of the asset decreases faster earlier in its life and slower later in its life. Under declining-balance depreciation, the asset loses a fixed percentage of its remaining value over time. (“Remaining” is emphasized to contrast with straight-line depreciation, which loses a fixed percentage of its original value.) The depreciation amount is a fixed percentage, α* of the book value of the asset at the beginning of that year. As the book value decreases, so does the depreciation amount. The formula for calculating the declining-balance depreciation amount in year t is as follows:

Depreciation_year(t) = α * BookValue_year(t–1)

Unlike straight-line depreciation, declining-balance ...