About Diminishing Value (Australia)

The Diminishing Value method of depreciation allows you to depreciate larger amounts in the first year of an asset's life, and then gradually decrease depreciation amounts in subsequent years until the total amount to depreciate has been reached.

With this method, it is assumed that the value of a depreciating asset decreases more in the early years of its effective life. The value of the equipment is depreciated by a defined percentage of the base value on a monthly basis.

Calculations for Diminishing Value Depreciation

The formula for calculating diminishing value:

base value × (days held ÷ 365) × (200% ÷ asset's effective life)

  • The base value represents the Purchase Price of the asset.
  • The days held represent the Depreciation Start Date until the end of the fiscal year (July for AU). This value is recalculated for every fiscal year being scheduled. For all months in a fiscal year, the Amount to Take is approximately equal.
  • The asset's effective life represents the asset's life in years (in the formula, this number comes from # of Months Held ÷ 12).
  • The 200% is the Diminishing Value Factor (factor of 2.0), which is used for assets from May 2006 and forward.

The base value reduces each year by the decline in the value of the asset. So if the purchase price is $50,000, the days held is 365, and the effective life is 5 years, the base value for the first year is $50,000. Based on the formula above, the total amount to take for the first year is $20,000:

50,000 × (365 ÷ 365) × (200% ÷ 5) = 20,000

The system then subtracts the $20,000 from the $50,000 to get the base value for the next year ($50,000 – $20,000 = $30,000). This process continues until the value reaches zero.

However, when no residual value is assigned and the monthly depreciation falls below $1.00 per month, the system stops calculating depreciation. This limits the total number of months calculated.

Important: If the number of years to depreciate is less than two (24 months held or fewer), this formula for diminishing value will not produce an accurate schedule. This is because when the number of years is less than the diminishing value factor (2.0), the result of 200% ÷ asset's effective life is greater than one, producing a value that is greater than the starting base value.

However, this is an unlikely scenario considering most assets have an effective life of more than two years.

Example of the Diminishing Value Depreciation Schedule

Fiscal Year-End: 06/15

Purchase Price: 50,000

Residual Value: 0.00

Total Amt to Depreciate: 50,000

First Month to Depreciate: 7/14

# of Months to Depreciate: 60

Depreciation Factor: 2.0

You can see the depreciation schedule for a particular asset in the Schedule tab of EM Asset Setup. The form header displays the total depreciation amount taken and the remaining amount to take.

For more information about what to enter in this form, see Field Definitions: EM Asset Setup Form.