What is Double-declining-balance depreciation?
In short
Double-declining-balance is an accelerated depreciation method that applies twice the straight-line rate to the asset's carrying amount at the start of each year.
Key takeaways
- Salvage value is ignored in the rate, but the asset is not depreciated below salvage value.
- Depreciation is highest in the first year and declines each year.
- A change to or from it is treated as a change in estimate, applied prospectively.
Example
Cost $120,000, 5-year life: rate 40%; year 1 depreciation $48,000; year 2 $28,800.
Where it's tested
FAR: Property, Plant & Equipment — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company purchases equipment for $110,000 with an estimated salvage value of $10,000 and a 5-year useful life. Using double-declining-balance depreciation, what is depreciation expense in Year 2?