When you use this depreciable basis rule the depreciation for the first fiscal year is based on the Declining Modified Polish tax depreciation method. The rate of depreciation used by the Declining Modified Polish tax depreciation method is obtained by multiplying the flat rate with the alternate depreciation factor.
The formula used to calculate the rate of depreciation used by the Declining Modified Polish tax depreciation method is as follows:
Flat Rate * Alternate Depreciation Factor
For example if the flat rate is 20 percent and the alternate depreciation factor is 3, then the depreciation rate is:
20% * 3 = 60%
At the beginning of the second fiscal year the Polish tax depreciation method automatically switches from the Declining Modified Polish tax depreciation method to the Declining Classic Polish tax depreciation method. The depreciation rate is calculated using the Declining Classic Polish tax depreciation method.
The formula used to calculate the rate of depreciation used by the Declining Classic Polish tax depreciation method is as follows:
Flat Rate * Depreciation Factor
For example if the flat rate is 20 percent and the depreciation factor is 2, then the resulting depreciation rate for this Polish tax depreciation method is:
20% * 2 = 40%
Depreciation in the second fiscal year is always calculated on the basis of cost. Depreciation in the subsequent fiscal years (where the Declining Classic Polish tax depreciation method is used), is calculated on the following basis:
Cost - Depreciation Reserve + First Year Reserve
After the second fiscal year, at the beginning of every fiscal year, a test is performed to verify whether the estimated depreciation amount calculated based on the Declining Classic Polish tax depreciation method is equal to or less than the estimated depreciation amount calculated based on the flat rate.
If the estimated depreciation calculation based on the Declining Classic Polish tax depreciation method is equal to or less than the estimated depreciation amount calculated based on the flat rate, then from that fiscal year onward, the depreciation method needs to change to the Flat Rate method. Otherwise depreciation will continue with the Declining Classic Polish tax depreciation method.
| Month | Year 1: 20% * 2.5 (5000.00) | Year 2: 20% * 2 (4000.00) | Year 3: 20% * 2 (1000.00) |
|---|---|---|---|
| M1 | 416.67 | 333.33 | 200.00 |
| M2 | 416.67 | 333.33 | 200.00 |
| M3 | 416.67 | 333.33 | 200.00 |
| M4 | 416.67 | 333.33 | 200.00 |
| M5 | 416.67 | 333.33 | 200.00 |
| M6 | 416.67 | 333.33 | -- |
| M7 | 416.67 | 333.33 | -- |
| M8 | 416.67 | 333.33 | -- |
| M9 | 416.67 | 333.33 | -- |
| M10 | 416.67 | 333.33 | -- |
| M11 | 416.67 | 333.33 | -- |
| M12 | 416.63 | 333.37 | -- |
In this example:
The asset cost is $10,000.
Year 1 uses the Declining Modified Polish tax depreciation method with a depreciation basis of 10,000.
Year 2 uses the Declining Classic Polish tax depreciation method with a depreciation basis of 10,000.
Year 3 uses the Declining Classic Polish tax depreciation method with a depreciation basis of 6000.
Note: In this case, the basis has changed to Cost - Reserve + First year reserve.
The depreciation reserve amounts for each year are as follows:
Year 1: 5000.00
Year 2: 9000.00
Year 3: 10,000.00