Double Declining Method

The double-declining balance depreciation method, often known as the double depreciation method, accounts for higher depreciation in the early years of the machinery’s useful life than in the later years. This may represent a situation in which the expense of equipment is more valuable in its early years than in its later years. For instance, an automobile loses greater value the first few years after being purchased. The depreciation factor for the double-declining balance technique is double that of the straight-line expense method. The depreciation percentage, which is equal to one divided by the total number of life span years, is first calculated in order to determine the double-declining balance depreciation.

The cost of the machinery for the first year is multiplied by 2 and then multiplied by the depreciation percentage in order to calculate the double-declining balance depreciation for the first year. The machinery’s depreciation is subtracted from its initial cost in this stage to produce a new value. The machinery’s new value is then determined using this value. The new depreciation is then calculated by multiplying the machinery’s new value by twice the depreciation percentage. Every year of the complete life span years is followed by these stages.

Double declining balance = 2 x Straight-line depreciation rate x Book value at the beginning of the year

Suppose ABC Company purchases a machine for $100,000, with an estimated salvage value of $10,000 and a useful life of 5 years. The straight-line depreciation rate is 20%.

The double declining balance depreciation method calculation is: