Expert: Arthur Naman - 7/27/2009

Question
E.G. Purchase a machine at 5,000.00 on JULY 2008.Estimated life span is 3 years.For Reducing Balance Method, can i use 30% for 1st year, 35% on 2nd year, & 35% on 3rd year ?

Our financial year ended DEC 2008,so, for 1st year, depreciate at 30% from JULY to DEC 2008.

Depreciated rate from JULY to DEC 2008 : --       
JULY 2008  $ 125.00
AUG  2008  $ 125.00
SEPT 2008  $ 125.00
OCT  2008  $ 125.00
NOV  2008  $ 125.00
DEC  2008  $ 125.00
TOTAL :    $ 750.00

The new financial year start on 2009, may i know that for JAN 2009, should i use $ 125.00 from JAN to JUNE 2009 ? (Remark:to complete one year depreciation at 30% from JULY 2008 to JUNE 2009)

OR
Can I use 5,000.00 - 750.00 = 4,250.00 to start depreciation at 35% from JAN to DEC 2009 ?

JAN 2009   $ 123.95
FEB 2009   $ 123.95
MAR 2009   $ 123.95
APR 2009   $ 123.95
MAY 2009   $ 123.95
JUNE 2009  $ 123.95
JULY 2009  $ 123.95
AUG 2009   $ 123.95
SEPT 2009  $ 123.95
OCT 2009   $ 123.95
NOV 2009   $ 123.95
DEC 2009   $ 124.05
TOTAL:     $ 1487.50

Kindly advise that which one is the correct ?

Thank you very much.

Answer
Normally a declining balance depreciation method means applying a fixed percentage to the remaining balance until the straight-line method is greater than the depreciation calculated using the declining balance method.

So, no I do not believe your method is correct -- 30%, then 35% then 39%. Accordingly, I would ask -- do you understand the common depreciation methods -- for GAAP or Tax.