Class: Senior Secondary School 1 (SS1, SS 1, SSS1, SSS 1)
Term: 3rd Term
Week: 9
Age: 15 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Financial Accounting
Previous Lesson: Depreciation Account Straight Line Method.
Topic: DEPRECIATION ACCOUNT
Subject Matter: Diminishing balance depreciation method, reducing balance method meaning, formula for diminishing balance depreciation, calculation of depreciation, preparation and posting of depreciation to final accounts

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

Define the diminishing balance method of depreciation.
State the formula for calculating depreciation using the diminishing balance method.
Explain the steps involved in calculating depreciation using this method.

Affective Domain:

Appreciate the importance of accurate depreciation calculation in financial reporting.
Demonstrate accuracy and neatness in preparing depreciation schedules.

Psychomotor Domain:

Calculate depreciation for assets using the diminishing balance method.
Prepare and post depreciation entries to relevant ledger accounts and final accounts.

Participate actively in class discussions and practical exercises.

Reference Materials

The following resources were used in planning this lesson:

9 Years Basic Education Curriculum for Senior Secondary Schools.
State Unified Scheme of Work for Financial Accounting (SSS 1).
Financial Accounting for Senior Secondary Schools by O.A. Longe.
Financial Accounting for Senior Secondary Schools by I.A. Adewunmi.

Instructional Materials

The teacher will teach this lesson with the aid of:

Charts showing depreciation calculations.
Whiteboard and markers.
Financial Accounting textbooks.
Calculators.

Rationale for the Lesson

This lesson helps pupils understand how the value of assets decreases over time, which is important for accurate business reporting. It enables them to apply a specific accounting method to calculate this decrease, preparing them for practical accounting tasks and understanding business profitability.

Prerequisite/Previous Knowledge

Pupils are expected to have a general understanding of what depreciation is and may have been introduced to the straight-line method of depreciation.

Lesson Content/Board Summary

DEPRECIATION ACCOUNT: DIMINISHING BALANCE METHOD

Meaning of Diminishing Balance Method

The diminishing balance method, also known as the reducing balance method, is a method of depreciation where a fixed percentage is applied to the net book value (cost less accumulated depreciation) of an asset each year. This results in a higher depreciation charge in the early years of an asset’s life and a lower charge in later years.

Formula for Diminishing Balance Depreciation

The formula for calculating depreciation using the diminishing balance method is:

Depreciation = Rate of Depreciation (%) × Net Book Value (NBV) at the beginning of the year

Where Net Book Value (NBV) = Cost of Asset – Accumulated Depreciation

Steps in Calculating Depreciation using Diminishing Balance Method

The following are the steps to calculate depreciation using the diminishing balance method:

Determine the cost of the asset.
Determine the annual depreciation rate.
Calculate the depreciation for the first year by applying the rate to the asset’s cost.
Subtract the first year’s depreciation from the asset’s cost to get the net book value at the end of the first year.
For subsequent years, calculate depreciation by applying the fixed rate to the net book value at the beginning of that year (which is the closing net book value of the previous year).
Continue this process until the asset’s useful life ends or its book value reaches its residual value.

Example Calculation of Diminishing Balance Depreciation

A machine was purchased for N50,000 on January 1, 2022. The company uses the diminishing balance method at a rate of 20% per annum.

Year 1 (2022):
Depreciation = 20% of N50,000 = N10,000
Net Book Value (end of 2022) = N50,000 – N10,000 = N40,000

Year 2 (2023):
Depreciation = 20% of N40,000 = N8,000
Net Book Value (end of 2023) = N40,000 – N8,000 = N32,000

Year 3 (2024):
Depreciation = 20% of N32,000 = N6,400
Net Book Value (end of 2024) = N32,000 – N6,400 = N25,600

Posting Depreciation to Final Accounts

Depreciation is treated in the final accounts as follows:

Income Statement (Profit and Loss Account): The annual depreciation charge is treated as an expense and debited to the Income Statement. This reduces the reported profit for the year.
Balance Sheet: The accumulated depreciation is subtracted from the cost of the asset in the Balance Sheet. This shows the asset at its net book value (carrying amount), reflecting its reduced value over time.

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher greets the pupils and reviews the previous lesson on depreciation (e.g., straight-line method). The teacher then introduces the topic of diminishing balance method as another way to calculate depreciation.
Pupils’ Activity: Pupils respond to greetings, recall previous knowledge, and listen attentively to the introduction.
Learning Point: Pupils are reminded of the concept of depreciation and introduced to a new method.

Step 2: Meaning of Diminishing Balance Method

Time: 8 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher explains the meaning of the diminishing balance method (reducing balance method) and highlights its key characteristic of applying a fixed percentage to the net book value. The teacher explains why this method results in higher depreciation in earlier years.
Pupils’ Activity: Pupils listen, take notes, and ask questions for clarification.
Learning Point: Pupils understand the definition and basic principle of the diminishing balance method.

Step 3: Formula and Steps for Calculation

Time: 10 minutes
Teaching Skill: Demonstration/Explanation
Teacher’s Activity: The teacher writes the formula for diminishing balance depreciation on the board and explains each component. The teacher then outlines the step-by-step process for calculating depreciation using this method, emphasizing the use of net book value.
Pupils’ Activity: Pupils copy the formula and steps into their notebooks and ask questions.
Learning Point: Pupils learn the formula and systematic approach for calculating diminishing balance depreciation.

Step 4: Practical Example Calculation

Time: 10 minutes
Teaching Skill: Demonstration/Application
Teacher’s Activity: Using the example provided in the lesson content (machine purchased for N50,000, 20% rate), the teacher demonstrates the calculation of depreciation for three years on the board, explaining each step clearly. The teacher shows how the net book value decreases each year.
Pupils’ Activity: Pupils observe the calculation, follow along, and verify results using their calculators.
Learning Point: Pupils see a practical application of the diminishing balance method and understand how the net book value changes.

Step 5: Posting Depreciation to Final Accounts

Time: 7 minutes
Teaching Skill: Explanation/Illustration
Teacher’s Activity: The teacher explains how the calculated depreciation is treated in the Income Statement and Balance Sheet. The teacher clarifies that the annual charge goes to the Income Statement, and accumulated depreciation reduces the asset value on the Balance Sheet.
Pupils’ Activity: Pupils listen and note down the accounting treatment in final accounts.
Learning Point: Pupils understand the impact of diminishing balance depreciation on a company’s financial statements.

Step 6: Class Activity/Practice

Time: 5 minutes
Teaching Skill: Guided Practice
Teacher’s Activity: The teacher provides a short problem for pupils to attempt individually or in pairs. For example: “A vehicle was bought for N200,000 on Jan 1, 2023. Depreciation is charged at 10% per annum using the diminishing balance method. Calculate depreciation for 2023 and 2024.” The teacher walks around to provide assistance.
Pupils’ Activity: Pupils attempt the practice problem, applying the learned concepts and formula.
Learning Point: Pupils practice applying the diminishing balance method to solve a problem.

Step 7: Evaluation/Review

Time: 5 minutes

Teaching Skill: Questioning/Assessment

Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

Define the diminishing balance method of depreciation.
State the formula for calculating depreciation using the diminishing balance method.
Mention two steps involved in calculating depreciation using this method.
Explain how depreciation is shown in the Income Statement and Balance Sheet.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 2 minutes
Teaching Skill: Summarization
Teacher’s Activity: The teacher summarizes the key points of the lesson, reiterating the definition, formula, and application of the diminishing balance method. The teacher gives homework: “A machine costing N120,000 was bought on 1st January 2022. It is to be depreciated at 15% per annum using the diminishing balance method. Calculate the depreciation for 2022 and 2023.”
Pupils’ Activity: Pupils listen to the summary and copy down the homework assignment.
Learning Point: Pupils consolidate their understanding of the topic.

Lesson Keywords

Diminishing Balance Method – A depreciation method where a fixed percentage is applied to the net book value of an asset each year.
Reducing Balance Method – Another name for the diminishing balance method.
Net Book Value (NBV) – The cost of an asset minus its accumulated depreciation.
Accumulated Depreciation – The total amount of depreciation charged against an asset since its purchase.
Rate of Depreciation – The percentage used to calculate the annual depreciation charge.

Differentiation

For pupils who are struggling, the teacher will provide additional examples and work through them step-by-step, focusing on one calculation at a time. Visual aids and simpler numerical examples will be used. For advanced learners, the teacher will challenge them with more complex scenarios, such as assets purchased mid-year, or requiring them to compare the diminishing balance method with the straight-line method.

Note for teachers using this lesson plan

Ensure pupils have a good grasp of basic percentages and subtraction before beginning the lesson. Emphasize the difference between applying the rate to the original cost versus the net book value. Encourage the use of calculators and neat presentation of workings for clarity in calculations.