Double Declining Balance Method

The double-declining balance methodology could be a variety of accelerated depreciation methodology that calculates a better charge within the initial year of associate degree asset's life and bit by bit decreases depreciation expense in ulterior years.

To calculate depreciation expense, use double the straight-line rate. as an example, suppose a business has associate degree plus with a value of one,000, a hundred salvage price, and five years helpful life. First, calculate the straight-line rate. Since the plus has five years helpful life, the straight-line rate equals (100% / 5) or 2 hundredth p.a.. With double-declining-balance, double that rate to make four-hundredth. Apply the speed to the book value of the plus (cost deducted by accumulated depreciation) and ignore salvage value. At the purpose wherever book value is up to the salvage value, no additional depreciation is taken.

On April 1, 2011, Company A purchased an equipment at the cost of $140,000.  This equipment is estimated to have 5 year useful life.  At the end of the 5th year, the salvage value (residual value) will be $20,000.  Company A recognizes depreciation to the nearest whole month.  Calculate the depreciation expenses for 2011,  2012 and 2013 using double declining balance depreciation method.

       Useful life = 5 years  -->  Straight line depreciation rate = 1/5 = 20% per year

       Depreciation rate for double declining balance method
            = 20% x 200% = 20% x 2 = 40% per year

       Depreciation for 2011
           = $140,000 x 40% x 9/12 = $42,000

       Depreciation for 2012
           = ($140,000 - $42,000) x 40% x 12/12 = $39,200

       Depreciation for 2013
           = ($140,000 - $42,000 - $39,200) x 40% x 12/12 = $23,520

 
   Double Declining Balance Depreciation Method

Year	Book Value at the beginning	Depreciation Rate	Depreciation Expense	Book Value at the year-end
2011	$140,000	40%	$42,000 (*1)	$98,000
2012	$98,000	40%	$39,200 (*2)	$58,800
2013	$58,800	40%	$23,520 (*3)	$35,280
2014	$35,280	40%	$14,112 (*4)	$21,168
2015	$21,168	40%	$1,168 (*5)	$20,000