Double Declining Balance Method of Depreciation:
- Define and explain the double declining balance method of depreciation.
- What is double declining balance formula and and also provide example.
Double declining balance method is another type of accelerated depreciation method followed generally in USA. The depreciation expense is computed by multiplying the asset cost less accumulated depreciation by twice the straight line rate expressed in percentage. No provision is made for salvage value of the asset.
Double declining balance formula is used to calculate the rate:
Double Declining Balance Rate = (100%/Years of Useful Life) × 2
A printing machine is purchased for $20,000 on January 1991. The scrap value is estimated at $2,000 at the end of 5 years useful life of the asset.
Required: Calculate the annual depreciation charge by applying double declining balance method
Depreciation rate (100%/5) × 2 = 40%
The following table shows the depreciation for the five year period:
|End of Year
In applying this method the entire original cost can never be depreciated. There is bound to be some balance though only a small one. In this example, a salvage value of $1,555 isautomatically provided for. However, an asset should not be depreciated below it salvage value of $2,000. Therefore the depreciation expenses at the end of fifty year should be $592 and not $1,037
You may also be interested in other articles from “accounting for depreciation” chapter:
- Definition and Explanation of Depreciation
- Causes of Depreciation
- Need for Depreciation
- Depreciation, Depletion and Amortization
- Difference Between Depreciation and Fluctuation
- Basic Factors of Determination of Depreciation
- Depreciation Methods / Methods for Providing Depreciation
- Fixed Installment Method / Straight Line Method / Original Cost Method
- Diminishing balance/written Down Value/Reducing Installment Method of Depreciation
- Annuity Method of Depreciation
- Depreciation Fund Method or Sinking Fund Method
- Insurance Policy Method of Depreciation
- Revaluation Method of Depreciation
- Sum of the Years’ Digits Method of Depreciation
- Double Declining Balance Method of Depreciation
- Depletion Method of Depreciation
- Basis of Use System of Depreciation
- Depreciation Of Various Assets
- Depreciation Accounting – General Questions and Answers
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