Business Glossary

accelerated depreciation method in which a constant percentage factor of twice the straight-line rate is multiplied each year by the declining balance of the asset's book value. The straight-line rate is simply the reciprocal of the useful life in years, multiplied by 100. If the useful life is five years, the straight-line rate is 1/5 ¥ 100 = 20%. Therefore, the double declining rate is 40%.

To determine the annual depreciation expense, the asset's book value at the beginning of the period is multiplied by the double declining rate.

For example, assume that the asset costs $1000 and has an estimated useful life of five years. The estimated salvage value at the end of the five-year period is $100. The calculations for this method follow:

Note that in the fifth year depreciation expense is only $30, the amount needed to reduce the asset's book value to the estimated salvage value of $100. An asset is not depreciated below its salvage value. Thus, even though salvage value was ignored in the initial computation, the depreciation in the last year(s) cannot bring the asset's book value to less than the salvage value.