Double Declining Method

Double declining method of depreciation is also known as 200 percent declining balance methods of depreciation. It is a common type of accelerated depreciation. To use double declining method of depreciation, the accountant would firstly calculate the depreciation just like the straight line system. Then he will determine the total percentage of assets which is depreciated in the first year and then double it. Every following year, that same percent has to be multiplied by the remaining amount or balance which has to be depreciated. Sometime, the value will be lesser than the straight line charge as a result of which, the double declining method of depreciation will be scrapped and the straight line used for the remaining asset’s life. The following example might help you understand in a better way.

Let us think that a computer value is 6000 dollars with the salvage value of 300 dollars and an estimated useful life of 3 years would be depreciated by 1700 dollars yearly. In the first year you have to compare this to the total amount to be depreciated i.e. 4800 dollars (6000 dollars base minus 300 salvage value is equal to 5700 dollars). Dividing 1700 dollars by 5700 dollars, you would find the straight-line depreciation charge of 1700 dollars is 33.3 percent of the total depreciation amount of 5700 dollars. With the help of this data, you have to double 33.3 percent figure to double i.e. 66.67 percent.

In the first year, you will take 5700 dollars multiplied by .6667 in order to get the total depreciation amount of about 4000 dollars.  In the next year, you have to take the same percentage i.e. 66.67 percent and multiply it with the remaining amount which has to be depreciated. You would find that 1700 dollars is the remaining balance or amount which has to be depreciated at the beginning of the second year  i.e. 5700 dollars minus 4000 dollars is equal to 1700 dollars.  Then multiply 1700 dollars by .6667 in order to get 1133 dollars.  However remember if the depreciation charges go below the amount which would be charged by utilizing the straight-line technique, since the double declining amount is slipped and therefore straight line method is used. Straight line process called for charges of 1,700 dollars per year. Certainly, the 1,133 dollars charge is lesser than the 1,700 dollars which would have come under straight line. Therefore, the deprecation charge for the second year will be 1,700 dollars.

Questionnaire:

• What is Double declining method of depreciation?
• How to calculate depreciation of an assets using Double declining method of depreciation. Illustrate with an example.