Double-Declining-Balance depreciation method (DDB) Definition | Business Dictionaries from AllBusiness.com
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Business Definition for: Double-Declining-Balance depreciation method (DDB)
Double-Declining-Balance depreciation method (DDB)

method of accelerated depreciation, approved by the Internal Revenue Service, permitting twice the rate of annual depreciation as the straight-line method. It is also called the 200 percent decliningbalance method. The two methods are compared below, assuming an asset with a total cost of $1,000, a useful life of four years, and no salvage value .

With straight-line depreciation the useful life of the asset is divided into the total cost to arrive at the uniform annual charge of $250, or 25% a year. DDB permits twice the straight-line annual percentage rate-50% in this case-to be applied each year to the ndepreciated value of the asset. Hence: 50% × $1,000 = $500 the first year, 50% × $500 = $250 the second year, and so on.

YEAR STRAIGHT LINE DOUBLE DECLINING
BALANCE
Expense Cumulative Expense Cumulative
1 $250 $250 $500 $500
2 250 500 250 750
3 250 750 125 875
4 250 1,000 63 938
$1,000 $938

A variation of DDB, called 150 percent declining balance method, uses 150% of the straight-line annual percentage rate.

A switch to straight-line from declining balance depreciation is permitted once in the asset's life-logically, at the third year in our example. When the switch is made, however, salvage value must be considered.

See also depreciation , Modified Accelerated Cost Recovery System (MACRS)
Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.

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