Double-Declining-Balance Depreciation Method (DDB)
It is a depreciation method in which the depreciation rate is applied double to that in straight line method. The depreciation in this method is charged on the complete purchase price of asset rather than the net of salvage value price in straight line method. In other words we can say that double declining depreciation method uses double the rate of straight line method.
It is a common form of accelerated depreciation also known as 200 times declining balance method. Accelerated means that the depreciation amount in the beginning will be greater than the rate taken out with straight line method. The main purpose is to charge greater depreciation in the beginning useful life years but gradually the depreciation amount decreases. It does not mean that since the amount is greater in the beginning years the depreciation charged through out the useful life will be greater than the straight line method.
For example an asset is purchased at a cost of $100,000 having no salvage values and a useful life of ten years. The depreciation lets suppose is 10% for straight line method so, with the double declining method the rate will become 20%. Since there is no depreciation in the first year the depreciation will be calculated as $100000*10%=$20,000. The book value now becomes $100,000-$20000= $80000 so for the 2nd year depreciation by double declining method will become $80000*20%=$16000.
The process carries on till the end of useful life. The accumulated depreciation for the two years will become $20,000+$16000 and the book value will be the accumulated depreciation minus the book value for one year. The main idea is to depreciate the asset value steeply through the early years of useful life due to which the depreciation expenses become large in the early years and small in the remaining years.
As it is clear that the depreciation amount is decreased in the 2nd year which is going to decrease further through out the life. Few people during useful life of the asset switches to straight line method, others stick to the original method depending on the case.
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