Double Declining Balance Depreciation Method

Loading the player...

What is the 'Double Declining Balance Depreciation Method'

The double declining balance depreciation method is one of two common methods a business uses to account for the expense of a long-lived asset. The double declining balance depreciation method is an accelerated depreciation method that counts twice as much of the asset’s book value each year as an expense compared to straight-line depreciation. The formula is:

Depreciation for a period=2*straight line depreciation percent*[(book value at beginning of period-salvage value)-accumulated depreciation)]. 

BREAKING DOWN 'Double Declining Balance Depreciation Method'

Under the generally accepted accounting principles (GAAP) for public companies, expenses are recorded in the same period as the revenue that is earned as a result of those expenses. Thus, when a company purchases an expensive asset that will be used for many years, it doesn’t deduct the entire purchase price as a business expense in the year of purchase, but instead deducts a portion of the price in each of several years.

For example, if a business purchased a delivery truck for $30,000 that it expected to last for 10 years, after which it would be worth $3,000 (its salvage value), the company would deduct the remaining $27,000 as $2,700 per year for 10 years under straight-line depreciation. Using the double-declining balance method, however, it would deduct 20% (double 10%) of $27,000 in year 1 ($5,400), 20% of $21,600 ($27,000 minus $5,400) in year 2 ($4,320), and so on.

Because the double declining balance method results in larger depreciation expenses near the beginning of an asset’s life and smaller depreciation expenses later on, it makes sense to use this method with certain assets that lose value quickly.

RELATED TERMS
  1. Retirement Method of Depreciation ...

    An accounting procedure in which an asset is expensed for depreciation ...
  2. Annuity Method Of Depreciation

    A method of depreciation centered around cost recovery and a ...
  3. Half-Year Convention For Depreciation

    A depreciation schedule that treats all property acquired during ...
  4. Fully Depreciated Asset

    A property, plant, or piece of equipment which, for accounting ...
  5. General Depreciation System - GDS

    The most commonly used modified accelerated cost recovery system ...
  6. Depreciated Cost

    1. The value of an asset net of all accumulated depreciation ...
Related Articles
  1. Personal Finance

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  2. Managing Wealth

    How Rental Property Depreciation Works

    It's a bit tricky, but a valuable tool to make your investment pay off.
  3. Investing

    Depreciation

    Amortization and depreciation are two ways to prorate the cost of an asset's life. Learn more about the latter and how it it's calculated.
  4. Trading

    Top Economic Factors That Depreciate The $US

    A variety of factors contribute to currency depreciation, including monetary policy, inflation, demand for currency, economic growth and export prices.
  5. Investing

    What are Noncurrent Assets?

    Noncurrent assets are property that a company owns that will last for more than one year.
  6. Investing

    What's a Fixed Asset?

    Fixed assets are tangible property that a business uses in the process of producing income. To qualify as a fixed asset, the item cannot be consumed or sold in less than a year. Fixed assets ...
  7. Investing

    Financial Statements: Earnings

    By David Harper (Contact David)In this section, we try to answer the question, "what earnings number should be used to evaluate company performance?" We start by considering the relationship ...
  8. Investing

    What's the Bottom Line?

    The bottom line refers to the last line on a company’s income statement. This line shows net profit after all expenses, depreciation and taxes have been deducted from revenue. This is in contrast ...
  9. Managing Wealth

    Cars That Depreciate In Value The Most

    You can't avoid depreciation on your car, but you can avoid certain models that depreciate in value a lot.
  10. Investing

    What is a Contra Account?

    A contra account is an offset that reduces the value of a related account.
RELATED FAQS
  1. What are the different ways to calculate depreciation?

    Read about some of the different allowable methods of calculating depreciation expenses as allowed by generally accepted ... Read Answer >>
  2. What is the relationship between accumulated depreciation and depreciation expense?

    Understand the relationship between accumulated depreciation and depreciation expense. Learn how each one is accounted for ... Read Answer >>
  3. How is salvage value used in depreciation calculations?

    Learn how an asset's salvage value is subtracted from its initial cost to determine the amount by which an asset is depreciated ... Read Answer >>
  4. How does accumulated depreciation affect net income?

    Learn why accumulated depreciation does not directly affect a company's net income; understand where a company accounts for ... Read Answer >>
  5. What happens to accumulated depreciation when you sell an asset?

    Learn what happens to a company's accumulated depreciation when it sells an asset. Understand why accumulated depreciation ... Read Answer >>
  6. How do I create a trading strategy when a stock doesn’t reach a higher high swing?

    Understand what a contra account is and why it's used in accounting. Learn what contra account is used to reduce the book ... Read Answer >>
Hot Definitions
  1. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  2. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  3. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  4. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  5. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  6. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
Trading Center