2.2.1.3.2. Declining Balance Depreciation
In addition to the straight-line method are several accelerated methods, in which depreciation expense is greatest in the first year and steadily declines with each subsequent year. Declining balance depreciation is the most frequently used of these methods. The declining balance methods apply a constant percentage rate to an asset’s straight-line depreciation, whose balance declines each year by the amount depreciated in the previous year. The double declining balance (DDB) depreciation method applies a percentage rate of 200%. The 150% declining balance method applies a factor of 1.5.
Example: A five-year asset costs $100,000. Straight-line depreciation is $20,000, as we have just seen. Using the double-declining balance method, depreciation expense is calculated as follows:
|
Double Declining Balance Depreciation |
|||
|
End of Year |
Book Value |
Calculation |
Depreciation |
|
0 |
$100,000 |
- |
- |
|
1 |
$60,000 |
2 x $100,000 / 5 |
$40,000 |
|
2 |
$36,000 |
2 x $60,000 / 5 |
$24,000 |
|
3 |
$21,600 |
2 x $36,000 / 5 |
$14,400 |
|
4 |
$12,960 |
2 x $21,600 / 5 |
$8,640 |
|
5 |
$7,776 |
2 x $12,960 / 5 |
$5,184 |
|
Total |
- |
- |
$92,224 |