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# Declining Balance Method Definition

## What Is the Declining Balance Method?

The declining balance method is an accelerated depreciation system of recording larger depreciation expenses during the earlier years of an asset’s useful life and recording smaller depreciation expenses during the asset's later years.

### Key Takeaways

• In accounting, the declining balance method is an accelerated depreciation system of recording larger depreciation expenses during the earlier years of an asset’s useful life while recording smaller depreciation during its later years.
• This technique is useful for recording the depreciation of computers, cell phones, and other high-technology products that rapidly become obsolete.
• The declining balance technique represents the opposite of the straight-line depreciation method, which is more suitable for assets whose book value steadily drops over time.
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## How to Calculate Declining Balance Depreciation

Depreciation under the declining balance method is calculated with the following formula:

﻿ \begin{aligned} &\text{Declining Balance Depreciation} = CBV \times DR\\ &\textbf{where:}\\ &CBV=\text{current book value}\\ &DR=\text{depreciation rate (\%)}\\ \end{aligned}﻿

## Declining Depreciation vs. the Double-Declining Method

If a company often recognizes large gains on sales of its assets, this may signal that it's using accelerated depreciation methods, such as the double-declining balance depreciation method. Net income will be lower for many years, but because book value ends up being lower than market value, this ultimately leads to a bigger gain when the asset is sold. If this asset is still valuable, its sale could portray a misleading picture of the company's underlying health.

Employing the accelerated depreciation technique means there will be smaller taxable income in the earlier years of an asset's life.

Article Sources
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1. Internal Revenue Service. "Publication 946 (2021), How To Depreciate Property."

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