How to use the double declining balance calculator
- Enter the asset cost, the salvage value you expect at the end and the useful life in whole years.
- Decide about the straight line switch. With it off, the schedule is pure double declining balance. With it on, each year uses the larger of the declining balance amount and a straight line share of what is left, so book value ends at salvage.
- Read the schedule year by year: expense, accumulated depreciation and book value.
- Compare the first-year expense with the straight line amount shown for comparison.
Formula
Rate = 2 / useful life
Expense in a year = beginning book value x rate
Cap: book value never goes below salvage
Optional switch: straight line = (beginning book value - salvage) / remaining years
Salvage value is not subtracted before applying the rate, which is why the early years are large. Each year is rounded to the cent and the rounded book value carries forward.
A $10,000 machine with $1,000 salvage over 5 years
The rate is 2 / 5 = 40%. Year 1 is $10,000 x 40% = $4,000, leaving $6,000. Year 2 is $6,000 x 40% = $2,400, leaving $3,600. Year 3 is $1,440 and year 4 is $864, leaving $1,296. Year 5 would be $518.40, but only $296 can be taken without going below the $1,000 salvage value.
With no salvage value the same asset follows 4,000, 2,400, 1,440, 864 and 518.40, leaving $777.60 of book value if you never switch. With the straight line switch, year 4 takes $2,160 / 2 = $1,080 instead of $864 and year 5 takes the last $1,080, ending at zero.
Why book value may not reach salvage
Taking a fixed percent of a shrinking balance never quite reaches a floor on its own. If the salvage value is high enough, the cap stops the schedule at salvage, as in the example. If it is zero or low, the last year of pure double declining balance can leave book value above salvage.
Many accounting policies solve this by switching to straight line in the year when that method gives a larger expense. That option is available here, and the schedule says which year the switch happened.
Compared with other methods
Double declining balance is an accelerated method: it charges more depreciation early and less later. Straight line charges the same amount each year, and units of production follows usage. The overall total over the life is the same, cost minus salvage, so the choice only changes timing.
The depreciation calculator covers straight line, sum of the years digits and declining balance with other factors. For usage-based depreciation use the units of production depreciation calculator, and for vehicles the car depreciation calculator.
Assumptions and limits
- The schedule uses whole years with no partial-year or mid-year convention.
- Book value never goes below the salvage value you enter.
- Each year is rounded to the cent and the rounded book value is carried forward.
- This is a book (accounting) schedule. Tax depreciation such as MACRS tables, Section 179 and bonus depreciation follows other rules and is not modeled. Ask a tax professional about those.
Frequently asked questions
What is double declining balance depreciation?
It is an accelerated method that depreciates an asset at twice the straight line rate, applied to the book value at the start of each year. The early years carry the largest expense.
How do I calculate double declining balance depreciation?
Divide 2 by the useful life in years to get the rate, then multiply by the book value at the start of each year. For a $10,000 asset with a 5-year life the first year is $10,000 times 40 percent, or $4,000.
Do I subtract salvage value in the double declining method?
Not before applying the rate. You apply the rate to the full book value, but you stop depreciating when book value reaches salvage.
When should I switch to straight line?
Many policies switch in the first year when dividing the remaining depreciable amount by the remaining years gives a larger expense than the declining balance formula. The option in the tool does that automatically.