# Double Declining Depreciation: Definition

Double-declining depreciation, defined as an accelerated method of depreciation, is a GAAP approved method for discounting the value of equipment as it ages. It depreciates a tangible asset using twice the straight-line depreciation rate.

## Double Declining Depreciation: Explanation

Double declining depreciation, explained as one of the most common methods to depreciate tools, is everywhere. The idea is that the asset’s value declines more steeply in the early years of usage. The result is that the depreciation expenses are larger in beginning and then get smaller over time.

Companies often use this method of depreciation for tax purposes. Because the depreciation expenses are larger in the early periods of the asset’s useful life, the

savings are greater in the beginning of the depreciation cycle and the tax benefits come sooner.

### Double-Declining Balance Method: Schedule

When using double-declining balance method schedule, the depreciation rate stays the same, the depreciation expense gets smaller each period, and the depreciable base gets smaller each period.

Begin with the depreciable base, and then calculate the depreciation expense for the period. Subtract that depreciation expense from the depreciable base to get the depreciable base for the next period. Repeat this process until you reach the salvage value. If the final depreciation expense would bring the asset value below salvage value, then simply subtract salvage value from that period’s depreciable base to get the final depreciation expense.

For example, if you have an asset with a purchase price of \$1,000, a salvage value of \$100, and a useful life of 5 years, then the straight-line depreciation rate will be 20%. The double-declining depreciation rate would then be 40%. The double declining depreciation table for the asset would look like this:

```YearDepreciable Base      Depreciation Rate      Depreciation Expense

1    \$1,000                  40%                               \$400
2    \$600                    40%                               \$240
3    \$360                    40%                               \$144
4    \$216                    40%                               \$86.40
5    \$129.60                  -                                \$29.60```

### Double Declining Depreciation: Example

Brian is an accountant for small businesses. A trained CPA, Brian uses his skills to make sure each of his client businesses receives the financial management it needs.

He is approached by a customer who needs to depreciate his equipment. Brian naturally turns to double declining depreciation, GAAP compliance, simple application, and other benefits of this method make it a perfect fit for this job. Brian then collects information and performs the calculation below:

Purchase price is \$1,000; Salvage value is \$100; and useful life is 5 years

Depreciable Base = \$1,000 – \$100 = \$900

Depreciation Expense = \$900 / 5 = 180

Double Declining Depreciation Rate = \$180 / \$900 = 20%

Brian finds that the double declining depreciation method, here, yields a rate of 20%. He then creates the schedule above. This allows a clear understanding of how each depreciation expense relates to time.

Brian knows the value of financial management. Where many potential clients have failed, he has led many of his customers to success through this alone. He values the double declining depreciation schedule he has created here because it may create the same effect for this client. 0

## Double-Declining Depreciation Formula

Double-Declining Method Depreciation

# Double-Declining Depreciation Formula

To implement the double-declining depreciation formula for an Asset you need to know the asset’s purchase price and its useful life.

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

### Double-Declining Method Calculation Example:

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. 