# What is the double declining balance method of depreciation?

Author:
Harold Averkamp, CPA, MBA

## Definition of Double Declining Balance Method of Depreciation

The double declining balance method of depreciation, also known as the 200% declining balance method of depreciation, is a form of accelerated depreciation. This means that compared to the straight-line method, the depreciation expense will be faster in the early years of the asset’s life but slower in the later years. However, the total amount of depreciation expense during the life of the assets will be the same.

The “double” means 200% of the straight line rate of depreciation, while the “declining balance” refers to the asset’s book value or carrying value at the beginning of the accounting period. Since book value is an asset’s cost minus its accumulated depreciation, the asset’s book value will be decreasing when the contra asset account Accumulated Depreciation is credited with the depreciation expense of the accounting period.

## Example of Double Declining Balance Depreciation

Let’s assume that a retailer purchases fixtures on January 1 at a cost of \$100,000. It is expected that the fixtures will have no salvage value at the end of their useful life of 10 years. Under the straight-line method, the 10-year life means the asset’s annual depreciation will be 10% of the asset’s cost. Under the double declining balance method the 10% straight line rate is doubled to 20%. However, the 20% is multiplied times the fixture’s book value at the beginning of the year instead of the fixture’s original cost.

At the beginning of the first year, the fixture’s book value is \$100,000 since the fixtures have not yet had any depreciation. Therefore, under the double declining balance method the \$100,000 of book value will be multiplied by 20% and will result in \$20,000 of depreciation for Year 1. The journal entry will be a debit of \$20,000 to Depreciation Expense and a credit of \$20,000 to Accumulated Depreciation.

At the beginning of the second year, the fixture’s book value will be \$80,000, which is the cost of \$100,000 minus the accumulated depreciation of \$20,000. When the \$80,000 is multiplied by 20% the result is \$16,000 of depreciation for Year 2.

At the beginning of Year 3, the asset’s book value will be \$64,000. This is the fixture’s cost of \$100,000 minus its accumulated depreciation of \$36,000 (\$20,000 + \$16,000). The book value of \$64,000 multiplied by 20% is \$12,800 of depreciation expense for Year 3.

At the beginning of Year 4, the asset’s book value will be \$51,200. Therefore, the book value of \$51,200 multiplied by 20% will result in \$10,240 of depreciation expense for Year 4.

At the beginning of Year 5, the asset’s book value will be \$40,960. This is the amount to be depreciated over the remaining 6 years. In year 5, companies often switch to straight-line depreciation and debit Depreciation Expense and credit Accumulated Depreciation for \$6,827 (\$40,960/6 years) in each of the six remaining years.

Join PRO to Track Progress
Must-Watch Video

#### Advance Your Accounting and Bookkeeping Career

• Perform better at your job
• Get hired for a new position
• Pass your accounting class

Read all 2,645 reviews

#### PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

#### About the Author

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

#### Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

• Debits and Credits