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Double declining balance method

The double-declining balance method charges a higher amount of depreciation in the earlier years of an asset’s life, and less in later years. Such a method is known as an accelerated method of depreciation as it depreciates faster initially than the straight-line method but ultimately, the totals of the depreciation of the two methods do not differ much.

The double-declining balance method is suitable for assets that are most productive in their early years and may become obsolete before they are fully depreciated. With this method, a fixed rate which is double the straight-line rate is used to calculate the yearly depreciation expense based on the declining book value of the asset. As the book value declines, so does the depreciation. The book value that remains after the asset is fully depreciated is recognized as the scrap value.

As an example, an asset is worth $20,000 is depreciated over five years at 40% which is double the straight-line rate of 20% for five years, and no salvage value is estimated. The following tables provide the figures for the five years’ depreciation.

Year

Percentage applied

Book value of asset

Depreciation

Accumulated Depreciation

Asset Balance

$

$

$

$

1

40%

20,000

8,000

8,000

12,000

2

40%

12,000

4,800

12,800

7,200

3

40%

7,200

2,880

15,680

4,320

4

40%

4,320

1,728

17.408

2,592

5

40%

2,592

1,037

18,445

1,555*

* At the end of the fifth year, this amount $1,555 is the book value as well as the salvage value.


This table shows the salvage value if it had been estimated at $2,000.

Year

Percentage applied

Book value of asset

Depreciation

Accumulated Depreciation

Asset Balance

$

$

$

$

1

40%

20,000

8,000

8,000

12,000

2

40%

12,000

4,800

12,800

7,200

3

40%

7,200

2,880

15,680

4,320

4

40%

4,320

1,728

17.408

2,592

5

-

2,592

592**

18,000

2.000

** Net book value must not be lower than salvage value.

Last Updated (Friday, 03 September 2010 18:44)