Page 281 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

A discussion of three representative depreciation methods that have been widely used to determine the
depreciation allowed each year is provided. Currently, only the straight line and double declining balance
methods are approved by the IRS. The sum of the years digits method has been used previously and is

included here for completeness.
Straight-Line Depreciation Method, SL: An equal amount of depreciation is charged each year
over the depreciation period allowed. This is shown as

(9.22)

Sum of the Years Digits Depreciation Method, SOYD: The formula for calculating the
depreciation allowance is as follows:

(9.23)

The method gets its name from the denominator of Equation (9.23), which is equal to the sum of the
number of years over which the depreciation is allowed:

1 + 2 + 3... + n = (n)(n + 1)/2
For example, if n = 7, then the denominator equals 28.
Double Declining Balance Depreciation Method, DDB: The formula for calculating the
depreciation allowance is as follows:

(9.24)

In the declining balance method, the amount of depreciation each year is a constant fraction of the
book value, BV . The word double in DDB refers to the factor 2 in Equation (9.24). Values other
k–1
than 2 are sometimes used; for example, for the 150% declining balance method, 1.5 is substituted
for the 2 in Equation (9.24).
In this method, the salvage value does not enter into the calculations. It is not possible, however, to
depreciate more than the value of D. To avoid this problem, the final year’s depreciation is reduced