Double-declining balance

Definition

Double-declining balance in plain English

Depreciation spreads an asset's cost over its life, and double-declining balance is the "front-loaded" version — it charges big expenses early and smaller ones later, which fits things that lose value fast (like a new car). It takes the normal straight-line rate, DOUBLES it, and applies that percentage each year to the asset's remaining "book value" (cost minus depreciation taken so far), so the yearly charge keeps shrinking as the book value shrinks. "Salvage value" is what you expect the asset to be worth at the very end; this method ignores it in the math but stops depreciating once book value drops down to it, so you never write the asset below what it's actually worth. For example, a $10,000 machine on a 10-year life has a 10% straight-line rate, so year one takes 20% — $2,000 — leaving $8,000 to work on next year.

Learn these first

• Capital expenditure
• Internal controls

Related Financial Accounting terms

• Accounts receivable
• Accumulated depreciation
• Allowance for doubtful accounts
• Amortization
• Accounting Standards Codification (ASC) 350
• Accounting Standards Codification (ASC) 805
• Book value
• Capital expenditure
• Contingent liability
• Cost of goods sold