double declining balance method depreciation

Double declining balance method | definition and example

Definition of double declining balance method of depreciation

The double declining balance method of depreciation also called accelerated depreciation method. In this depreciation method first fall the straight-line depreciation rate is determined, just dividing the original cost by its life. It means the scrap value is ignored while calculating the rate of depreciation.

The depreciation rate calculated above is multiplied by 2 to set the double declining balance rate. Then, the calculated depreciation rate is charged every year as in the declining balance method.

To calculate the rate of depreciation under this depreciation balance method the following formula can be used:

double declining balance method depreciation rate
Depreciation rate

For example:

An equipment was purchased for Rs. 70,000. The life of the equipment was estimated 5 years. And, the estimated residual value of the equipment at the end of 5 years was Rs. 8,000.

Required:

a. Calculate depreciation rate for each year.

b. And, prepare depreciation schedule.

Solution:

a.

Here,

Original cost = Rs, 70,000

Residual value = Rs. 8,000

Estimated life of equipment = 5 years

Now,

Using the double declining balance method

Rate of depreciation = 100% / No. of years × 2

= 100% / 5 × 2 = 40%

Therefore, required depreciation rate = 40%

b.

Depreciation schedule

Under double declining balance method

YearAnnual
depreciation
Accumulated
depreciation
Ending
value
0
1
2
3
4
5

Rs. 28,000
Rs. 16,800
Rs. 10,080
Rs. 6,048
Rs. 1,072

Rs. 28,000
Rs. 44,800
Rs. 54,880
Rs. 60,928
Rs. 62,000
Rs. 70,000
Rs. 42,000
Rs. 25,200
Rs. 15,120
Rs. 9,072
Rs. 8,000

On the above table, the residual value at the end of the first year is Rs. 8,000. The company can charge maximum depreciation amount to Rs. (Rs. 70,000 – Rs. 8,000) Rs. 62,000. Therefore, the last year annual depreciation is adjusted to maintain the maximum applicable depreciation.

See, also

Reducing balance method

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