@Brucanna, your statements merely confirm my earlier remark that, “There are probably as many ways of calculating depreciation as there are accountants in the world.”
Actually, what you have described and illustrated is not monthly depreciation via a declining balance method. It is annual depreciation, prorated to monthly installments. That is what I meant by a hybrid method. Under strict declining balance depreciation, once the first month’s depreciation is recorded, the second month’s depreciation can no longer be calculated on the basis of acquisition or beginning-of-year book value. The book value of the asset has decreased, and the next month’s depreciation is figured from the lower book value.
You correctly observe that the total depreciation over the first year, in your example, is only 18.26%, not the notional 20%. And that is true. One of the inherent features of declining balance depreciation is that depreciation tapers off over time and, absent lump-sum depreciation entries near the end of life, will never fully depreciate an asset. This is like trying to cross the street by repetitively covering half the remaining distance—you never make it to the other side. Many consider this method of depreciation to be more representative of actual asset value, since the fact an asset remains in service implies it has some value, rather than having its value drop to zero because some pre-defined lifetime has passed. Similarly, judicious selection of the notional depreciation rate can better model behavior of assets whose value declines very rapidly at the beginning of life.
Your statements suggest that you believe an asset with a notional 20% depreciation rate would be fully depreciated after 5 years. Under the declining balance method, that simply is not true.
You can like or dislike Manager’s methodology for depreciation calculation. You may also be restricted by law from using it. But it remains a valid approach and functions as described in the Guide, which is filled with notes and caution statements covering the limitations you raised. If you don’t like it, use your own method and make manual entries until more options become available. But please do not assert the method is wrong, even if you have never encountered it. Others certainly have, and the method is well documented in accounting literature.