Double Declining Method of Depreciation

As we have discussed in our previous posts that there are several method of depreciation. One of them is Double Declining Balance method. It is an accelerated tactic to depreciate the fixed asset over its useful life. It is denoted by DDB.

This concept is based on the view that in initial years, assets are new and as such, more future economic benefits can be derived from its usage. However, in later years as the asset gets older, there are few future economic benefits that drives from the asset. That is why, it is suggested to depreciate the asset at double speed in initial years.

Example

TYB is a trading concern. Following data is available for its fixed assets:

Cost = $ 500,000

Depreciation Rate = 10 %

Useful Life = 05 years

Required

Calculate depreciation expense from year 01 to 05 using DDB method.

Solution

In order to calculate depreciation over DDB method, we will multiply depreciation rate by 2 as follows:

DDP Depreciation rate = 2 x 10 = 20 % 

Year

 Opening Balance

 Depreciation @ 20 %

 Book Value

1

500,000

100,000

400,000

2

400,000

80,000

320,000

3

320,000

64,000

256,000

4

256,000

51,200

204,800

5

204,800

40,960

163,840