Definition of Double-Declining-Balance Depreciation
The double-declining-balance method of depreciation is a form of accelerated depreciation. This means a greater percentage of depreciable asset’s cost will be expensed in early years of the asset’s life and therefore less in the later years (compared to equal amounts using straight-line depreciation).
Use of Double-Declining-Balance on Financial Statements
Generally, companies will not use the double-declining-balance method of depreciation on their financial statements. The reason is that it causes the company’s net income in the early years of an asset’s life to be lower than it would be under the straight-line method.
One reason for using double-declining-balance depreciation on the financial statements is to have a more consistent combination of depreciation expense and repairs and maintenance expense throughout the life of the asset. In other words, in the early years of the asset’s life, when the repairs and maintenance expenses are low, the depreciation expense will be high. In the later years of the asset’s life, when the repairs and maintenance expenses are high, the depreciation expense will be low. (While this seems logical, companies prefer to delay expenses and enjoy the higher net income in the early years of an asset’s life.)
