# Diminishing Balance Method of Depreciation | Example |

In Diminishing Balance method, we have calculated the depreciation on the closing value of an asset and charge until the book value of an asset will equal to its scrap value. The amount of depreciation will be diminished or decreased as compared to last year because we charge the fixed rate of depreciation on the closing value of an asset.

It is also called written down value and reducing value method.

This method is suitable for tangible assets like Building, plant & machinery and furniture & fixture etc.

The Depreciation can be calculated under this method with the help of following formula:

Example: On 01/04/2017 Machinery purchased for Rs 11,00,000/- and paid for transportation charge 1,50,000/- to install the machine in our plant and paid installation charges also for Rs 50,000/-. The rate of Depreciation @ 10% Year ending 31 March.

So, Total Cost of an asset  = 11,00,000+1,50,000+50,000

= Rs 13,00,000/-

The following table shows the year by year depreciation charged under Diminishing Balance Method.

 Year ended Opening balance of an asset Amount of depreciation The closing balance of an asset 31-03-2017 13,00,000 1,30,000 11,70,000 31-03-2018 11,70,000 1,17,000 10,53,000 31-03-2019 10,53,000 1,05,300 9,47,700 31-03-2020 9,47,700 94,770 8,52,930 31-03-2021 8,52,930 85,293 7,67,637 31-03-2022 7,67,637 76,764 6,90,873 31-03-2023 6,90,873 69,087 6,21,786 31-03-2024 6,21,786 62,179 5,59,607 31-03-2025 5,59,607 55,961 5,03,647 31-03-2026 5,03,647 50,365 4,53,282 31-03-2027 4,53,282 45,328 4,07,954 31-03-2028 4,07,954 40,795 3,67,158 31-03-2029 3,67,158 36,716 3,30,443 31-03-2030 3,30,443 33,044 2,97,398 31-03-2031 2,97,398 29,740 2,67,658 31-03-2032 2,67,658 26,766 2,40,893 31-03-2033 2,40,893 24,089 2,16,803 31-03-2034 2,16,803 21,680 1,95,123 31-03-2035 1,95,123 19,512 1,75,611 31-03-2036 1,75,611 17,561 1,58,050 31-03-2037 1,58,050 15,805 1,42,245 31-03-2038 1,42,245 14,224 1,28,020 31-03-2039 1,28,020 12,802 1,15,218 31-03-2040 1,15,218 11,522 1,03,696 31-03-2041 1,03,696 10,370 93,327

#### Now, we will post all the journal entries year by year as follows: –

 Date Particulars L.F. Debit Credit 1st Year 2016-17 01-Apr Machinery A/c Dr. 13,00,000 To Bank A/c 13,00,000 (Being land purchased on lease ) 31-Mar Depreciation A/c Dr. 1,30,000 To Machinery A/c 1,30,000 (Being Depreciation on asset charged) 31-Mar Profit or loss A/c Dr. 1,30,000 To Depreciation A/c 1,30,000 (Being Depreciation transfer to P&L A/c) 2nd Year 2017-18 31-Mar Depreciation A/c Dr. 1,17,000 To Machinery A/c 1,17,000 (Being Depreciation on asset charged) 31-Mar Profit or loss A/c Dr. 1,17,000 To Depreciation A/c 1,17,000 (Being Depreciation transfer to P&L A/c) Subsequent Years 2017-18 31-Mar Depreciation A/c Dr. _______ To Machinery A/c _______ (Being Depreciation on asset charged) 31-Mar Profit or loss A/c Dr. _______ To Depreciation A/c _______ (Being Depreciation transfer to P&L A/c) Note: – Journal Entries will be the same for all subsequent years but the only amount of depreciation will be changed as calculated in the above table
 Machinery Account Date Particulars Amount Date Particulars Amount 01-04-2017 To Bank A/c 11,00,000 31-03-2018 By Depreciation A/c 1,30,000 01-04-2017 To Bank A/c 1,50,000 31-03-2018 By Balance C/d 11,70,000 (Transportation) (Balancing Fig) 01-04-2017 To Bank A/c 50,000 (Installation) 13,00,000 13,00,000 01-04-2018 To Balance B/d 11,70,000 31-03-2019 By Depreciation A/c 1,17,000 31-03-2019 By Balance C/d 10,53,000 (Balancing Fig) 11,70,000 11,70,000 01-04-2019 To Balance B/d 10,53,000 31-03-2020 By Depreciation A/c 1,05,300 31-03-2020 By Balance C/d 9,47,700 (Balancing Fig) 10,53,000 10,53,000 01-04-2020 To Balance B/d 9,47,700 31-03-2021 By Depreciation A/c 94,770 31-03-2021 By Balance C/d 8,52,930 (Balancing Fig) 9,47,700 9,47,700 01-04-2020 To Balance B/d 8,52,930 31-03-2021 By Depreciation A/c 85,293 31-03-2021 By Balance C/d 7,67,637 (Balancing Fig) 8,52,930 8,52,930 same entries will be posted till the value of asset become zero or equal to scrap value

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