Double-Declining Method Depreciation
First, Divide “100%” by the number of years in the asset’s useful life, this is your straight-line depreciation rate. Then, multiply that number by 2 and that is your Double-Declining Depreciation Rate. In this method, depreciation continues until the asset value declines to its salvage value.
Use the following formula to calculate straight-line depreciation rate:
Straight-line Depreciation Rate = Depreciation Expense / Depreciable Base
Use the following formula to calculate double-declining depreciation rate:
Double-declining Depreciation Rate = Straight-line Depreciation Rate x 2
Fedcorp Industries made a purchase of a delivery van to transport merchandise. The van purchase price is $1,000. Fedcorp also determines that the van’s will retain a useful life of 5 years. Using the information that the company has determined, how would Fedcorp Industries determine the double-declining depreciation rate on the delivery van?
First Divide 100% by 5 years
100% / 5 = 20%
Then, multiply that percentage by 2
20% x 2 = 40%
Your Double-Declining Depreciation rate is 40% . Which translates to depreciation of $400 per year for the company’s van.
Stop Calculating depreciation in the year after the depreciable cost falls below the salvage value of the vehicle.