To calculate Declining Balance with Switch to Straight Line depreciation

The declining balance with a switch to straight line is a formula in which declining balance is used for the first portion of an asset's life, then LN switches to the straight line formula to depreciate the asset to its salvage value based on its remaining life. The switch occurs in the first period in which the straight line remaining value calculation results in a larger depreciation amount than the declining balance calculation.

This formula is useful if you want to maximize the tax deduction for depreciation expense on your company's income tax returns. This method lets you book a large portion of an asset's depreciation in the early years of its life, then depreciate it to its salvage value. In the declining balance formula without a switch to straight line, the salvage value is disregarded.

If a depreciation method is applied with the Switch To SL check box selected in the Depreciation Methods (tffam7510m000) details session, then the straight line calculation with remaining-life / remaining-value or the normal straight line calculation is applied according to the Straight Line (SL) Switch criteria defined in the FAM Parameters (tffam0100s000) session.

The following formulas are used:

  • U.S. tax books:
 NBV = (Cost - Salvage - Sec179) * (Business Percentage / 100) - AD
  • Other books:
 NBV = Cost - Salvage - AD

where:

NBV = Net Book Value

AD = Accumulated Depreciation

Declined balance:
 Daily Depreciation = NBV * (Declined Balance Percentage / 100) * Days Depreciated / Days in Fiscal
			 Year Periodic Depreciation = NBV * (Declined Balance Percentage / 100) * Periods Depreciated / Periods in Fiscal Year
  • Normal Straight Line:
 Daily Depreciation = NBV * Days Depreciated / Days in Fiscal Year Periodic Depreciation = NBV *
			 Periods Depreciated / Period in Fiscal Year
  • Straight Line with Remaining-Life / Remaining-Value:
 Daily Depreciation = NBV * Days Depreciated / Remaining Life Days Periodic Depreciation = NBV * Periods Depreciated / Remaining Life Periods

For MACRS and ACRS the salvage value is not applied to depreciation of U.S. tax and commercial books.

Note

If the asset for which you are calculating depreciation contains an averaging convention, LN adjusts the depreciation expense for the first half year, quarter, or month calculation. For more information, see the topic, Calculations and Averaging Conventions.