DOUBLE DECLINING METHOD

1. An asset costing $20,000 has estimated useful life of 5 years and salvage value of $4,500.
Calculate the depreciation for the first year of its life using double declining balance method.
Solution
Straight-line Depreciation Rate = 1 ÷ 5 = 0.2 = 20%
Declining Balance Rate = 2 × 20% = 40%
Depreciation = 40% × $20,000 = $8,000

2. Referring to Example 1, calculate the depreciation of the asset for the second year of its life.
Solution
Declining Balance Rate = 40%
Book Value = Cost − Accumulated Depreciation = $20,000 − $8,000 = $12,000
Depreciation = 40% × $12,000 = $4,800

3. Calculate the depreciation of the asset mentioned in the above examples for the 3rd year.
Solution
Declining Balance Rate = 40%
Book Value = $20,000 − $8,000 − $4,800 = $7,200
Depreciation = 40% × $7,200 = $2,880
The depreciation calculated above will decrease the book value of the asset below its estimated residual
value ($7,200 − $2,880 = $4,320 < $4,500). Therefore, depreciation would only be allowed up to the
point where book value = salvage value. Thus, depreciation expense of $2,700 (= $7,200 − $4,500) is
allowed.

Declining Balance Method of Depreciation