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 x straight-line depreciation percent x (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 the price over 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 one ($5,400), 20% of $21,600 ($27,000 minus $5,400) in year two ($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 assets that lose value quickly.

Double Depreciation Rate

The double declining balance method is a type of declining balance method with a double depreciation rate. The declining balance method is one of the two accelerated depreciation methods and uses a depreciation rate that is some multiple of that for the straight-line method. Depreciation rates used in the declining balance method could be as 200% (double), 150% or 250% the straight-line rate. When the depreciation rate for the declining balance method is set as a multiple doubling the straight-line rate, the declining balance method is effectively the double declining balance method. Over the depreciation process, the double depreciation rate remains constant and is applied to the reducing book value each depreciation period.

Declining Book Value Balance

The book value of a depreciable asset at the beginning of each depreciation period is determined based on the asset's book value at the beginning of the prior period, minus the depreciation charge for the prior period. As a result, the book value or depreciation base declines over time. With the constant double depreciation rate and a successively lower depreciation base, depreciation charges using the double declining balance method decline each depreciation period. The balance of the book value is eventually reduced to the asset's salvage value after the last depreciation period. However, the final depreciation charge as calculated may have to be limited to a lesser amount to keep the salvage value as estimated.

  1. Declining Balance Method

    A common depreciation-calculation system that involves applying ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax ...
  3. Salvage Value

    The estimated value that an asset will realize upon its sale ...
  4. Accumulated Depreciation

    The cumulative depreciation of an asset up to a single point ...
  5. Retirement Method of Depreciation ...

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

    A method of depreciation centered around cost recovery and a ...
Related Articles
  1. Investing

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  2. Investing

    Double Declining Balance Depreciation Method

    The double declining balance depreciation method counts the depreciation of a long-lived asset’s book value at double the rate of its straight-line depreciation.
  3. Investing

    Explaining the Declining Balance Method

    The declining balance method is a system for calculating an asset’s rate of depreciation against its non-depreciated balance.
  4. Investing

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  5. Investing

    Understanding Accumulated Depreciation

    Depreciation is a rough approximation, in dollar terms, of the wear and tear on an asset. So the accumulated depreciation is the aggregate of the wear and tear on the asset from all prior time ...
  6. Investing

    What's Salvage Value?

    Salvage value is the amount a company expects to receive from the sale of an asset at the end of that asset’s useful life. Salvage value plays a part in the depreciation calculation of an asset, ...
  7. Trading

    Understanding Currency Depreciation

    Currency depreciation occurs when a currency’s value falls in comparison to other currencies.
  8. Investing

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  9. Financial Advisor

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  10. Investing

    How Rental Property Depreciation Works

    It's a bit tricky, but a valuable tool to make your investment pay off.
  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 are the different ways to calculate depreciation for tangible assets?

    Learn what depreciation is and how to calculate it using the straight line method, declining balance method, and the sum-of-the ... Read Answer >>
  3. What is the tax impact of calculating depreciation?

    Understand the tax implications of a company's depreciation. Learn how differences in accounting methods change the amount ... Read Answer >>
  4. 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 >>
  5. Is depreciation only used for tangible assets?

    Learn if tangible assets can be depreciated, as well as what other assets are eligible for depreciation so you can account ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center