Reducing residue method: features, formula and example

Amortization in accounting is a processtransferring the value of the OS and NMA in parts to the price of the products (works, services provided) as they are morally and physically deteriorated. The calculation of contributions can be made by different methods. They are defined in PBU 6/01.

Terminology

The depreciation is called the deductions of partthe cost of the OS for the compensation of wear and tear of objects. They are included in the costs of circulation or production. Deductions are made on the basis of established norms, as well as the book value of funds, which, in fact, accrues depreciation. The norm is the annual% compensation of the price of the worn out part of the OS.

Methods

In accordance with domestic accounting standards, there are four options for calculating:

1. Linear mode.It assumes a uniform distribution of the amount from the initial to the final cost (at the end of the operational period) throughout the life of the OS. The current residual value is determined by subtracting the accumulated accumulated depreciation of the property from the original.
2. The write-off of the value in proportion to the issuedvolume of products (services rendered, works performed). The calculation is carried out on the basis of the natural indicator (say, machine-hour of operation of the equipment).
3. The method of decreasing residue. The amount for each period is equal to the final cost multiplied by a certain percentage. Annually depreciation is charged at the beginning of the period.
4. Writing off the cost by the sum of the number of years of service life.

In accordance with the legislation of the enterprisecan choose the way to account for depreciation. The simplest is the linear method. However, for many organizations the use of the method of reduced balance is more profitable. It refers to nonlinear methods of accounting. Let us further consider what the reduced-balance method is. An example of the application of this method will also be described in the article.

Description

With a nonlinear method, the repayment of valueproperty is uneven throughout the entire operational period. Depreciation by the method of decreasing balance implies the use of the acceleration coefficient. The enterprise can establish it within 1-2.5. In this case, for a property leased, the coefficient can be increased threefold. In practice, this means that the company reimburses most of the cost of purchasing objects, while they are still relatively new.

Feasibility

In which cases are such depreciationdeductions? The method of decreasing residue is most suitable when the objects annually lose significantly in their productivity. Having spent a certain resource, the property requires ever greater costs for maintenance and repair. Its effectiveness is significantly reduced, despite the fact that the service life has not yet formally expired.

In other words, the benefit of operating such aproperty begins to decline. It is in the interests of the owner to write off the purchase as soon as possible. So he will have the opportunity to resume the OS from the depreciation fund.

Exceptions

It should be said that the method of decreasing depreciation depreciation is not applicable in all cases. This method is not suitable:

1. Unique equipment for individual types of productions.
2. Objects whose useful life is less than 3 years. They include equipment and equipment from 1-3 amortization groups.
3. Cars. The exception is business cars and taxis.
4. Office environment.
5. Buildings and some other objects, assigned to the 8-10th groups by useful life.

Calculation features

The calculation is based on the residual valueproperty. It is equal to the initial costs for its purchase and commissioning, from which the repaid amounts are deducted at the beginning of the period. Another indicator that will be required in the calculation is the depreciation rate. It is determined by the period of useful operation. The wear coefficient is defined as 100% / n. Here n is the service life in months or in years (depending on the time interval for which the calculation is done). The third indicator, which is used in the formula, is the acceleration coefficient. It is established by the enterprise independently and fixed in the financial policy.

The method of the reduced residue, thus, assumes the following equation:

A = Co * (K * Ku) / 100, in which:

• write-off amount - A;
• residual value - Co;
• wear rate is K;
• the acceleration coefficient is Ku.

Practical use

Consider how the decremented residue method works. The initial data is as follows:

• 50 thousand rubles - the amount to buy the OS;
• 5 years - useful life;
• acceleration factor - 2.

The calculation can be carried out in two ways.In the first case, the period of service is translated into months at once. In the second, the annual amount is calculated, and then divided by 12. For calculation, one and the other figures are needed. The fact is that depreciation is carried out every month, and to determine the residual value, you need an annual amount. First of all, the norm is calculated. It is 20% / year (100% / 5 years) or 1.67% / month. (100% / 60 or 20% / 12). Taking into account Ku = 2, the wear rate for the year is 40%, and for the month - 3.34%.

Applying the method of decreasing balance, the calculation can be carried out for every 12 months of separation:

1. In the first year the required value is equal to the original value. The amount of write-off: 50 thousand rubles x 40/100 = 20 000 or 1670 p / month.
2. In the second year, the accrual begins with the determination of the residual value. It will be 50 000 - 20 000 = 30 000 rubles. Further, using the formula, we get: 30 000 x 40/100 = 120 000 or 1 000 p / month.
3. For the third year, the calculation is carried out in a similar way. As a result, we get 7200 r / year or 600 r / month.
4. For January of the next (fourth) year, the balance of the initial costs for the purchase of the OS is 10,800 rubles. Substituting the value in the formula, we get the sum 4320 r / year or 360 r / month.
5. At the beginning of the last year, the cost is10800 - 4320 = 6480 r. The resulting figure is 13% of the OS price, taken into account when setting the object on the balance sheet. At this stage of the calculation, you should refer to the tax regulations. In accordance with Article 259 of the Tax Code, when the book value reaches 20% of the initial value, the calculation method is changed. To maintain the monthly repayment schedule and to write off the costs incurred for the property in full, the balance should be divided by the number of months before the end of operation. Thus, 6480 is divided into 12 months. As a result, the amount of depreciation per month for the last year of operation is 540 rubles.

Conclusion

Throughout the operational periodthe book value of the property is reduced by the depreciation amount. This will continue until it reaches zero. Here it is necessary to note one important point: if an enterprise chooses the method of the reduced balance, it should be applied throughout the operational period. It is effective from the date of posting and until the calculation of depreciation is completed. As a basis for stopping accrual of depreciation is the full repayment of the price of the property or its removal from the balance. It should not be forgotten that the method chosen by the enterprise should be necessarily fixed in the financial policy.