Double-Declining Balance
An accelerated depreciation method charging more expense in an asset’s early years.
Formula
Variables
Example
Asset $10k, life 5 yr, year 1: (2/5)×10k = $4k
How it works
Double-declining balance is a depreciation method that allocates a larger portion of an asset’s cost to the early years of use, reflecting the idea that many assets lose value fastest when they are newest. The formula applies a fixed accelerated rate of 2/n to the asset’s current book value each year, so the expense declines over time as the carrying amount gets smaller. Because the rate is applied to book value rather than original cost, the depreciation naturally tapers off from year to year.
When to use it
Use this method when an asset is expected to be more productive, more valuable, or lose value more rapidly in its first years, such as vehicles, computers, or equipment. It is common in financial accounting and tax-style depreciation schedules when accelerated expense recognition is appropriate.
Worked example, step by step
Suppose a machine has a book value of $24,000 and a useful life of 8 years. Step 1: Find the double-declining rate = 2 / 8 = 0.25 Step 2: Multiply by current book value = 0.25 × 24,000 Step 3: Depreciation expense = $6,000 Step 4: New book value after depreciation = 24,000 - 6,000 = $18,000 So, the depreciation expense for that year is $6,000 and the asset’s book value becomes $18,000.
Common mistakes to avoid
- Using the original cost every year instead of the current book value
- Forgetting that n is the useful life in years, not the number of depreciation periods used so far
- Assuming the method gives a constant annual expense rather than a shrinking one
Did You Know?
Accelerated depreciation defers taxes early on, improving a growing company’s cash flow when it needs it most.
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