Double Declining Balance Depreciation Calculator

(An example might be an apple tree that produces fewer and fewer apples as the years go by.) Naturally, you have to pay taxes on that income. But you can reduce that tax obligation by writing off more of the asset early on. As years go by and you deduct less of the asset’s value, you’ll also be making less income from the asset—so the two balance out. In later years, as maintenance becomes more regular, you’ll be writing off less of the value of the asset—while writing off more in the form of maintenance. So your annual write-offs are more stable over time, which makes income easier to predict. If the double-declining depreciation rate is 40%, the straight-line rate of depreciation shall be its half, i.e., 20%.

So, the depreciation expense is calculated in the last year by deducting the salvage value from the opening book value. The following examples show the application of the double and 150% declining balance methods to calculate asset depreciation. In the above example, we assumed a depreciation rate equal to twice the straight-line rate. Depreciation calculations require a lot of record-keeping if done for each asset a business owns, especially if assets are added to after they are acquired, or partially disposed of. However, many tax systems permit all assets of a similar type acquired in the same year to be combined in a “pool”. Depreciation is then computed for all assets in the pool as a single calculation.

Depreciation Base of Assets

We can incorporate this adjustment using the time factor, which is the number of months the asset is available in an accounting period divided by 12. This is because, unlike the straight-line method, the depreciation expense double declining balance method under the double-declining method is not charged evenly over the asset’s useful life. However, using the double declining depreciation method, your depreciation would be double that of straight line depreciation.

The final step before our depreciation schedule under the double declining balance method is complete is to subtract our ending balance from the beginning balance to determine the final period depreciation expense. Some systems specify lives based on classes of property defined by the tax authority. Canada Revenue Agency specifies numerous classes based on the type of property and how it is used. Under the United States depreciation system, the Internal Revenue Service publishes a detailed guide which includes a table of asset lives and the applicable conventions. The table also incorporates specified lives for certain commonly used assets (e.g., office furniture, computers, automobiles) which override the business use lives.

AccountingTools

It’s a good way to see the formula in action—and understand what kind of impact double declining depreciation might have on your finances. The most basic type of depreciation is the straight line depreciation method. So, if an asset cost $1,000, you might write off $100 every year for 10 years. Here’s the depreciation schedule for calculating the double-declining depreciation expense and the asset’s net book value for each accounting period.

The double declining balance method of depreciation is just one way of doing that. Double declining balance is sometimes also called the accelerated depreciation method. Businesses use accelerated methods when having assets that are more productive in their early years such as vehicles or other assets that lose their value quickly.