# How to Calculate Declining Balance Depreciation Declining Balance Depreciation is an accelerated cost recovery (expensing) of an asset that expenses higher amounts at the start of an assets life and declining amounts as the class life passes. The amount used to determine the speed of the cost recovery is based on a percentage. The most common declining balance percentages are 150% (150% declining balance) and 200% (double declining balance). Because most accounting textbooks use double declining balance as a depreciation method, we’ll use that for our sample asset.

The formula to calculate Double Declining Balance Depreciation is:

2 x Straight Line Rate (for 150% declining balance, the amount is 1.5 x Straight Line Rate)

The Straight Line Rate for a 5 year asset is 1/5 or 20%.

When we double the Straight Line Rate, we get 2 x 20% = 40%. 40% is the percentage we will apply each year of the assets life. We apply that amount to the Net Book Value of that Asset.

Net Book Value = Cost – Accumulated Depreciation

For our example asset, here’s how we calculate the first year:

Beginning Net Book Value of the asset is \$40,000 (we haven’t taken any depreciation yet. The asset is new.) We multiply the Beginning Net Book Value by 2 x Straight Line rate of 40% to arrive at the first year depreciation amount.

Depreciation Expense: 40,000 x .40 = 16,000

Depreciation Expense for the current year is added to any previous Accumulated Depreciation balance. For the first year, the balance was zero.

In the subsequent years of the asset, the same percentage is applied to the beginning Net Book Value of the asset. To calculate Ending Net Book Value always use Cost – Accumulated Depreciation. For year 2, this is \$40,000 – 25,600 = \$14,400.

When we get to the last year of the asset’s life, we ignore the formula. With declining balance methods of depreciation, when the asset has a salvage value, the ending Net Book Value should be the salvage value. Under Straight Line Depreciation, we first subtracted the salvage value before figuring depreciation. With declining balance methods, we don’t subtract that from the calculation. What that means is we are only depreciating the asset to its salvage value.

In the case of the first example asset, that value is \$2,000. If we used the formula in the last year, here’s what that would look like:

We should have an Ending Net Book Value equal to the Salvage Value of \$2,000. In this case, we have not taken enough depreciation. With other assets, we may find we would be taking more depreciation than we should. In the last year, ignore the formula and take the amount of depreciation needed to have an ending Net Book Value equal to the Salvage Value.

Here’s what that looks like:

Under or over depreciating an asset in the last year when using declining balance method of depreciation is the number one mistake accounting students make when learning depreciation!

For more examples of Double Declining Depreciation, watch this video:

For other depreciation methods, check out these articles:

• ## Difference Between Depreciation, Depletion, Amortization

In this article we break down the differences between Depreciation, Amortization, and Depletion, discuss how each one is used, and what the journal entries are to record each. The main

• ## Adjusting Journal Entries | Accounting Student Guide

When all the regular day-to-day transactions of an accounting period are completed, the next step is to check on the balances of certain accounts to see if those balances need

• ## How to Calculate Straight Line Depreciation

Straight-line Depreciation is used to depreciate Fixed Assets in equal amounts over the life of the asset. The basic formula to calculate Straight-line Depreciation is: (Cost – Salvage Value) /

• ## How to Calculate Declining Balance Depreciation

Declining Balance Depreciation is an accelerated cost recovery (expensing) of an asset that expenses higher amounts at the start of an assets life and declining amounts as the class life