The declining balance depreciation method is an accelerated method since a large part of the cost of the fixed asset is expensed at the beginning of the life of that asset. To calculate declining balance depreciation the depreciable basis of the fixed asset is multiplied by a factor. The depreciable basis is the book value of the fixed asset -- cost less accumulated depreciation.

The factor is the percentage of the asset that would be depreciated each year under straight line depreciation times an accelerator. For example, an asset with a five year life would have 20% of the cost depreciated each year. If the accelerator is 200% then the factor would be 40% (20% x 200%). The 200% accelerator is referred to as double declining balance and is the most common.

Example: A copy machine is purchased for $4,217.75. The expected life is 5 years. Using double declining balance the depreciation would be calculated as follows:

factor = 2 * (1/5) = 0.40

Year | Depreciable Basis | Depreciation Calculation | Depreciation Expense | Accumulated Depreciation |
---|---|---|---|---|

1 | 4,217.75 | 4,217.75 * 0.4 | 1,687.10 | 1,687.10 |

2 | 2,530.65 | 2,530.65 * 0.4 | 1,012.26 | 2,699.36 |

3 | 1,518.39 | 1,518.39 * 0.4 | 607.36 | 3,306.72 |

4 | 911.03 | 911.03 * 0.4 | 364.41 | 3,671.13 |

5 | 546.62 | 546.62 * 0.4 | 218.65 | 3,889.78 |

When a fixed asset has a salvage value the depreciation calculation would be the same as above. However, the book value of the asset would never fall below the salvage value. In some cases the book value of the asset may be larger than the salvage value.

**Example 1:**

The salvage value of the copy machine is $200.00. The depreciation would be calculated as follows:

Year | Depreciable Basis | Depreciation Calculation | Depreciation Expense | Accumulated Depreciation |
---|---|---|---|---|

1 | 4,217.75 | 4,217.75 * 0.4 | 1,687.10 | 1,687.10 |

2 | 2,530.65 | 2,530.65 * 0.4 | 1,012.26 | 2,699.36 |

3 | 1,518.39 | 1,518.39 * 0.4 | 607.36 | 3,306.72 |

4 | 911.03 | 911.03 * 0.4 | 364.41 | 3,671.13 |

5 | 546.62 | 546.62 * 0.4 | 218.65 | 3,889.78 |

This calculation is exactly the same as the initial example. At the end of the useful life the book value of the copy machine is $327.97. The book value is larger than the salvage value so there is no change to the calculation.

**Example 2:**

The salvage value of the copy machine is $500.00. The depreciation would be calculated as follows:

Year | Depreciable Basis | Depreciation Calculation | Depreciation Expense | Accumulated Depreciation |
---|---|---|---|---|

1 | 4,217.75 | 4,217.75 * 0.4 | 1,687.10 | 1,687.10 |

2 | 2,530.65 | 2,530.65 * 0.4 | 1,012.26 | 2,699.36 |

3 | 1,518.39 | 1,518.39 * 0.4 | 607.36 | 3,306.72 |

4 | 911.03 | 911.03 * 0.4 | 364.41 | 3,671.13 |

5 | 546.62 | -- | 46.62 | 3,717.75 |

Only $46.62 was expensed in the last period as opposed to $218.65 in the initial example. The lesser amount was expensed so that the book value would equal the $500.00 salvage value.

**Example 3:**

The salvage value of the copy machine is $1.000.00. The depreciation would be calculated as follows:

Year | Depreciable Basis | Depreciation Calculation | Depreciation Expense | Accumulated Depreciation |
---|---|---|---|---|

1 | 4,217.75 | 4,217.75 * 0.4 | 1,687.10 | 1,687.10 |

2 | 2,530.65 | 2,530.65 * 0.4 | 1,012.26 | 2,699.36 |

3 | 1,518.39 | -- | 518.39 | 3,217.75 |

4 | 1,000.00 | -- | 0.00 | 3,217.75 |

5 | 1,000.00 | -- | 0.00 | 3,217.75 |

Only $518.39 was expensed in the third period. This results in a book value that equals the salvage value. Since the book value and salvage value are the same no depreciation is expensed in the fourth and fifth periods.

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