Declining Balance Method - can we assume it is accelerated?

Is Decling Balane Method always accelerated depreciation as compared to Straight-line method?

There was a question in schweser. But the question does not mention that it is 2x or 1x or 0.5x declining balance method?

In the CPA exam, CFA exam, or in real life, I have never heard of a decelerated depreciation method.

In the CFA curriculum, the only declining balance method taught is double declining balance: the depreciation percentage is _ twice _ the corresponding straight-line percentage.

So, not only is it accelerated, it’s specifically _ double _ declining balance.

At the end of the day, management will depreciate an asset on a systematic basis that best reflects the assets use/useful life. Declining balance depreciation conceptually is more accelerated in the first few years of the asset being in use, however, it does not ‘necessarily’ mean that it is always accelerated relative to SL depreciation, it depends completely on the useful life assigned via SL depreciation versus the DB% assigned via declining balance method

While management may depreciate an asset in a manner that reflects the asset’s useful life, it’s a stretch to say that they depreciate it in a manner that reflects its use; more likely, management depreciates assets in a manner that best reflects their business objectives: adjusting their net income up or down as appropriate.

I appreciate your perspective, but am going to have to disagree with you on this one bud. The pillars of the IFRS framework are faithful representation and relevance, if a particular depreciation method better reflects the use/useful life of an asset than management is going to select that as a policy.

I’ve audited dozens of companies across many, many industries and have seen the full spectrum of depreciation methods being applied in practice (i.e. SL, declining balance, %rental revenue, units of production), and have discussed the rational of the policy selected with management. I assure you that in practice, management selects an accounting method that is most reflective of the assets use/useful life, and that the policy’s effect on net income/business objectives is never the primary driver behind policy selection. Business objectives are very often outweighed and overshadowed by faithful representation and relevance in financial reporting, especially so in companies that have a broad stakeholder group where the financial statements are more heavily scrutinized

Business objectives come into play moreso with items of accounting that are more subjective than something simple like amortization. In these instances, management may factor assumptions into their quantification of financial statement items which are more in-line with their reporting objectives. Examples of this would be discount rates, retirement obligations, warranty provisions, allowance for doubtful accounts, to name a few.

Fair enough: it sounds as though you have a lot of experience in this realm.

@sglondon - good post. Now head on over to the Enron post and tell us what you think.