Issued by the Committee on Accounting Procedure American Institute of Certified Public Accountants 270 Madison Avenue. New York 16, N. Y.
Copyright 1958 by American Institute of Certified Public Accountants
July, 1958 No. 44
(Supersedes Accounting Research Bulletin No. 44 issued in October 1954)
1. The declining-balance method of estimating periodic deprecia-tion has a long history of use in England and in other countries in-cluding, to a limited extent, the United States. Interest in this method has been increased by its specific recognition for income-tax purposes in the Internal Revenue Code of 1954.
2. The declining-balance method is one of those which meets the requirements of being "systematic and rational."1 In those cases where the expected productivity or revenue-earning power of the asset is relatively greater during the earlier years of its life, or where maintenance charges tend to increase during the later years, the declining-balance method may well provide the most satisfactory allocation of cost. The conclusions of this bulletin also apply to other methods, including the "sum-of-the-years-digits" method, which pro-duce substantially similar results.
3. When a change to the declining-balance method is made for gen-eral accounting purposes, and depreciation is a significant factor in the determination of net income, the change in method, including the effect thereof, should be disclosed in the year in which the change is made.
4. There may be situations in which the declining-balance method is adopted for income-tax purposes but other appropriate methods are used for financial accounting purposes. In such cases, accounting rec-
1Accounting Terminology Bulletin No. 1, par. 56.