Example - Cost: $575,000.00, Salvage: $5,000.00, Life: 10 years , First Year: 12 months, Factor: 1.5
| Year |
Book Value Year Start |
Depreciation Percent |
Depreciation Expense |
Accumulated Depreciation |
Book Value Year End |
|---|---|---|---|---|---|
| 1 | $575,000 | 15.00% | $86,250 | $86,250 | $488,750 |
| 2 | $488,750 | 15.00% | $73,313 | $159,563 | $415,438 |
| 3 | $415,438 | 15.00% | $62,316 | $221,878 | $353,122 |
| 4 | $353,122 | 15.00% | $52,968 | $274,846 | $300,154 |
| 5 | $300,154 | 15.00% | $45,023 | $319,869 | $255,131 |
| 6 | $255,131 | 15.00% | $38,270 | $358,139 | $216,861 |
| 7 | $216,861 | 15.00% | $32,529 | $390,668 | $184,332 |
| 8 | $184,332 | 15.00% | $27,650 | $418,318 | $156,682 |
| 9 | $156,682 | 15.00% | $23,502 | $441,820 | $133,180 |
| 10 | $133,180 | 15.00% | $19,977 | $461,797 | $113,203 |
The declining balance method is an accelerated depreciation method. Using this method the Book Value at the beginning of each period is multiplied by a fixed Depreciation Rate. 200% of straight line depreciation, or 2, is most commonly called the Double Declining Balance Method.
The declining balance calculation does not consider the salvage value in the depreciation of each period however, if the book value will fall below the salvage value, the last period might be adjusted so that it ends at the salvage value. When declining balance method does not fully depreciate an asset by the end of its life, variable declining balance method might be used instead.
Suppose you purchase an asset for your business for $575,000 and you expect it to have a life of 10 years with a final salvage value of $5,000. You also want less than 200% of the straight-line depreciation (double-declining) at 150% or a factor of 1.5.
Some accounting systems allow for Mid-Month, Mid-Year or Mid-Quarter Conventions.
The Excel equivalent function for Declining Balance Method is DDB(cost,salvage,life,period,factor). With it you can calculate depreciation for the chosen period. "factor" defaults to 2, double declining balance method, but you can change it. To calculate depreciation by the double declining method you can use this calculator setting the factor = 2 or use our Double Declining Balance Method Depreciation Calculator.
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Residual value, salvage value and scrap value mean the same thing. They refer to the value of an asset at the end of the useful life.