Double declining balance

The Double declining balance method of calculating depreciation is the second accelerated depreciation method. It also calculates a greater amount of depreciation in the earlier years of an asset's useful life compared to the later years. To illustrate this method we will look at the same piece of equipment used for the examples for the sum of the years method and the units of production method. A key difference to remember when using the Double Declining Balance calculation however is that salvage value is not deducted from the cost to get the depreciation base; instead you simply stop depreciating the asset after the book value is equal to the estimated salvage value. The book value represents the cost of the asset less the cumulative depreciation recognized. The formula is:

Annual Depreciation = (2 x (1/Useful Life)) x (Cost of the Asset - Accumulated Depreciation)

For example, the calculation for the first year of depreciation is:

= (2 x (1/ 3 Years)) x (50,000 Euros - 0 Euros)
= 0.67 x 50,000 Euros 
= 33,333 Euros 

The calculation for the second year of depreciation is:

= (2 x (1/ 3 Years)) x (50,000 Euros - 33,333 Euros)
 = 0.67 x 16,667
= 11,167 Euros 

The calculation for the third year of depreciation is:

= (2 x (1/ 3 Years)) x (50,000 Euros - 33,333 Euros - 11,167 Euros)
= 0.67 x 5,500 Euros

The formula result = 3,685 Euros. Depreciation is stopped after the book value is equal to the salvage value so only 500 Euros are depreciated in the third year.