The declining-balance (also known as double-declining-balance) method is a popular form of accelerated depreciating. The rate used is usually twice the rate employed by the straight-line method. This method does not consider the estimated salvage value in determining the depreciation rate or in computing the periodic depreciation. However, an asset cannot be depreciated beyond the estimated salvage value. Depreciation expense is highest in the first year, and becomes smaller each subsequent year.
Example:
Assume equipment that had a five-year life and a residual value of $ 1,500 was acquired for $36,000. The DDB equation
is
DDB% x Book value = Depreciation expense
v DDB % is computed as 100%, or 1 divided by life of the asset:
100%/5 = 20% x 2 = 40% , or 1/5 = 20% x 2 = 40%
Thus, depreciation expense schedule for the above example is
| Year | DDB% | X | Book Value | = | Depreciation Expense | Net Book Value |
| 0 | $ 36,000 | |||||
| 1 | 40% | X | $ 36,000 | = | $ 14,400 | 21,600 |
| 2 | 40% | X | 21,600 | = | 8,640 | 12,960 |
| 3 | 40% | X | 12,960 | = | 5,184 | 7,776 |
| 4 | 40% | X | 7,776 | = | 3,110 | 4,666 |
| 5 | 40% | X | 4,666 | = | 1,867 | 2,799 |
| Accumulated depreciation | $ 33,201 | |||||
| Book value | - | $ 2,799 | ||||
| - |
- 2612 reads
