Double Declining Depreciation Method Examples, Concepts, Illustrations, Sample help Online
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Understanding the concept of Double Declining Depreciation Method
Under Double Declining Depreciation Method, the amount of depreciation that is charged to an asset decreases over time. That is more depreciation is charged during the beginning of the life time and less is charged during the end.
This is because new assets are more productive and as time passes their productivity decreases. Therefore, in the beginning year revenue generated by the assets are also high as compared to later years. In order to match the depreciation expense with the revenue earned from the use of the asset this technique is followed.
Declining balance depreciation is calculated using the following formula
Depreciation = Depreciation Rate × Book Value of Asset
Depreciation Rate = Accelerator × Straight Line Rate.
Book value is the difference between cost of an asset and its accumulated depreciation. During the first accounting period, accumulated depreciation is zero so book value is equal to cost.
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Double Declining Depreciation Method Example Explanation
Example 1: Cost of an asset is $20,000 whose estimated useful life is of 5 years and salvage value of $4,500. Calculate the depreciation for the first year of its life using double declining balance method.
Straight-line Depreciation Rate = 1 ÷ 5 = 0.2 = 20%
Double Declining Balance Rate = 2 × 20% = 40%
Depreciation = 40% × $20,000 = $8,000
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