Double Declining Balance Method Example 1

Double Declining Balance Method Example 1

1. double declining balance method

Cost of asset = $100,000
Estimated residual value = $10,000
Estimated useful life of asset = 5 years

Depreciation rate = (1/useful life) x 200%
= 1/5 x 200% = 20% x 2 = 40%


Example 1 Summary

Year	Cost	Depreciation Rate	Depreciation	Accumulated Depreciation	Book Value
1	$100,000	40%	$40,000	$40,000	$60,000
2		40%	$24,000	$64,000	$36,000
3		40%	$14,400	$78,400	$21,600
4		40%	$8,640	$87,040	$12,960
5		40%	$2,960 (*)	$90,000	$10,000

(*) depreciation stops when book value = residual value


[Year 1]
Depreciation amount for year 1
= beginning book value x depreciation rate
= $100,000 x 40% = $40,000

Accumulated depreciation at the end of year 1 = $40,000
Book value at the end of year 1
= $100,000 - $40,000 = $60,000

[Year 2]
Depreciation amount for year 2
= beginning book value x depreciation rate
= $60,000 x 40% = $24,000

Accumulated depreciation at the end of year 2
= $40,000 + $24,000 = $64,000

Book value at the end of year 2
= $100,000 - $64,000 = $36,000

[Year 3]
Depreciation amount for year 3
= beginning book value x depreciation rate
= $36,000 x 40% = $14,400

Accumulated depreciation at the end of year 3
= $40,000 + $24,000 + $14,400 = $78,400

Book value at the end of year 3
= $100,000 - $78,400 = $21,600

[Year 4]
Depreciation amount for year 4
= beginning book value x depreciation rate
= $21,600 x 40% = $8,640

Accumulated depreciation at the end of year 4
= $40,000 + $24,000 + $14,000 + $8,640 = $87,040

Book value at the end of year 4
= $100,000 - $87,040 = $12,960

[Year 5]
Depreciation amount for year 5
= beginning book value x depreciation rate
= $12,960 x 40% = $5,184 ??

[NOTE]
For year 5, depreciation amount will not be $5,184.

If $5,280 is depreciated,
--> book value = $13,200 - $5,184 = $7,776
--> book value < residual value

Depreciation stops when book value = residual value
--> depreciation amount for year 5 = $2,960
--> book value = $12,960 - $2,960 = $10,000