Module 122 min2422 wordsFree — no account
Depreciation (AfA): straight-line, declining-balance, and buildings
The module’s worked examples, then cases to attempt before revealing their solution · 2 sections · 224 words · 3 min
Worked example
When the switch pays off
An appliance costing 10,000 euros, bought in January, five-year useful life, declining balance at thirty percent. Year one 3,000 euros, book value 7,000. Year two 2,100 euros, book value 4,900. In year three the declining charge would give 1,470 euros, while spreading 4,900 euros over three remaining years gives 1,633 euros: from now on straight-line is better.
Practical case
Straight-line or declining balance for the van?
A trade business buys a van with a combustion engine on 1 September 2026 for 36,000 euros net. Its normal useful life is six years. What is the depreciation charge for 2026 under the straight-line method and under the declining-balance method, and what is the declining-balance charge for 2027?
Hint: First determine the straight-line rate, then check both caps on the declining-balance rate. Count the full months before September.
Show the solution
Straight-line: 36,000 euros divided by six years gives 6,000 euros a year. Eight full months precede September, leaving four twelfths, so 2,000 euros. Declining balance: three times the straight-line rate of one sixth would be fifty percent, so the fixed thirty percent cap applies. Thirty percent of 36,000 euros is 10,800 euros, of which four twelfths: 3,600 euros. The book value is then 32,400 euros, and in 2027 thirty percent of it is written off.
Answer: 2026: 2,000 euros straight-line or 3,600 euros declining; 2027 declining 9,720 euros
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