The two-hundred percent (200%) declining balance method of depreciation, or double declining balance method of depreciation, is an example of accelerated depreciation.

Basically, accelerated depreciation is exactly what it sounds like—a greater depreciation of an asset off the starting block than the straight line method.

Acceleration means you are initially covering more “ground” over a shorter period of time. However, you still can’t depreciate an asset to a value less than its salvage value with the hard limit of zero. For the math to work out, the double declining balance method depreciates more than the straight line method early on. Then it switches over to a straight line method towards the end of the useful life of the asset.

Next, let’s break down double declining balance method into its parts:

• double: You start depreciating the asset at twice the straight line depreciation rate.

• declining balance: Declining balance refers to the fact that the book value (purchase price – depreciation) will decrease over time.

• method: There is a method to the madness. You continue to depreciate the asset at twice the rate of the straight line method based on the existing book value at the beginning of the period.

### Double declining balance method example

Remember, every accounting term is going to stay a little hazy until you work through a couple examples. So, we’ll complete an example here—complete with full ten-year depreciation.

Let’s say your company buys one truck on January 1 for \$50,000. And you expect to have a salvage value of \$5,000 at the end of its useful life of 10 years. Under the straight line method of depreciation, the ten-year life means the truck’s annual depreciation will be 9% of the asset’s cost.

With double declining balance depreciation, the 9% straight line rate is doubled to be 18%. Keep in mind that the 18% is multiplied by the asset’s book value at the beginning of the year. In the first year, the book value of the truck is the same as the truck’s original purchase price because the truck hasn’t been depreciated yet.

### Year 1

1. Year 1: First, multiply the book value of the truck (\$50,000) with the 18% for a depreciation of \$9,000.

2. Then record the depreciation journal entry in Year 1 as a debit of \$9,000 to the Depreciation Expense-Business Truck account and a credit of \$9,000 to the Accumulated Depreciation-Business Truck account.

3. So, after we record Year 1 depreciation, the book value of the work truck is now \$41,000. That’s the book value (\$50,000) minus the depreciation (\$9,000).

### Year 2

1. Year 2: First, multiply the book value of the truck (\$41,000) with the 18% for a depreciation of \$7,380.

2. Then record the depreciation journal entry in Year 2 as a debit of \$7,380 to the Depreciation Expense-Business Truck account and a credit of \$7,380 to the Accumulated Depreciation-Business Truck account.

3. So, after we record Year 2 depreciation, the book value of the work truck is now \$33,620. That’s the book value (\$41,000) minus the depreciation (\$7,380).

### Year 3

1. Year 3: First, multiply the book value of the truck (\$33,620) with the 18% for a depreciation of \$6,051.60.

2. Then record the depreciation journal entry in Year 3 as a debit of \$6,051.60 to the Depreciation Expense-Business Truck account and a credit of \$6,051.60 to the Accumulated Depreciation-Business Truck account.

3. So,after we record Year 3 depreciation, the book value of the work truck is now \$27,568.40. That’s the book value (\$33,620) minus the depreciation (\$6,051.60).

### Year 4

1. Year 4: First, multiply the book value of the truck (\$27,568.40) with the 18% for a depreciation of \$4,962.31.

2. Then record the depreciation journal entry in Year 4 as a debit of \$4,962.31 to the Depreciation Expense-Business Truck account and a credit of \$4,962.31 to the Accumulated Depreciation-Business Truck account.

3. So, after we record Year 4 depreciation, the book value of the work truck is now \$22,606.09. That’s the book value (\$22,606.09) minus the depreciation (\$4,962.31).

### Year 5

1. Year 5: First, multiply the book value of the truck (\$22,606.09) with the 18% for a depreciation of \$4,069.10.

2. Then record the depreciation journal entry in Year 5 as a debit of \$4,069.10 to the Depreciation Expense-Business Truck account and a credit of \$4,069.10 to the Accumulated Depreciation-Business Truck account.

3. So, after we record Year 5 depreciation, the book value of the work truck is now \$18,536.99. That’s the book value (\$22,606.09) minus the depreciation (\$4,069.10).

### Year 6

1. Year 6: First, multiply the book value of the truck (\$18,536.99) with the 18% for a depreciation of \$3,336.66.

2. Then record the depreciation journal entry in Year 6 as a debit of \$3,336.66 to the Depreciation Expense-Business Truck account and a credit of \$3,336.66 to the Accumulated Depreciation-Business Truck account.

3. So, after we record Year 6 depreciation, the book value of the work truck is now \$15,200.33. That’s the book value (18,536.99) minus the depreciation (\$3,336.66).

### Taking a time-out for math

So, we’ve applied the double declining balance depreciation for six of the ten years for the company truck. And we could keep applying the same pattern three more times so that we have a salvage value at the beginning of Year 10.

Now, the only problem is that if we keep applying the double declining balance method into Year 10, we aren’t going to end up with the salvage value that we want. Instead, we’d end up with a salvage value of \$6,872.40 rather than \$5,000. (You can verify the math for yourself or just trust us.)

You have a couple options here. First, you could realize that your salvage value estimate is just that—an estimate. You’ll have to make an adjusting entry when you sell the company truck to show the realized gain / realized loss. The chances that you will guess the selling price right on the money are pretty low unless you already have a contract in place.

Secondly, you could switch to straight line method at this point. In order to do that, we need to figure out what deprecation amount we should take from the last four years of the truck’s useful life. We can calculate that by subtracting the salvage value (\$5,000) from the book value at the end of year six (\$12,464.27).

The number we come up with is \$7464.27. Next, you divide that into three years and you get the amount that you need to depreciate the truck by to get a \$5000 salvage value (\$2,488.09).

### Year 7

1. Year 7: First, subtract the straight line method amount (\$2,488.09) from the book value of the truck (\$15,200.33).

2. Then record the depreciation journal entry in year 7 as a debit of \$2,488.09 to the Depreciation Expense-Business Truck account and a credit of \$2,488.09 to the Accumulated Depreciation-Business Truck account.

3. So, after we record year 7 depreciation, the book value of the work truck is now \$12,464.27.

### Year 8

1. Year 8: First, subtract the straight line method amount (\$2,488.09) from the book value of the truck (\$12,464.27).

2. Then record the depreciation journal entry in year 8 as a debit of \$2,488.09 to the Depreciation Expense-Business Truck account and a credit of \$2,488.09 to the Accumulated Depreciation-Business Truck account.

3. So, after we record year 8 depreciation, the book value of the work truck is now \$9,976.18.

### Year 9

1. Year 9: Subtract the straight line method amount (\$2,488.09) from the book value of the truck (\$9,976.18).

2. Then record the depreciation journal entry in year 9 as a debit of \$2,488.09 to the Depreciation Expense-Business Truck account and a credit of \$2,488.09 to the Accumulated Depreciation-Business Truck account.

3. So, after we record year 9 depreciation, the book value of the work truck is now \$7,488.09.

### Year 10

1. Year 10: First, subtract the straight line method amount (\$2,488.09) from the book value of the truck (\$7,488.09).

2. Then record the depreciation journal entry in year 10 as a debit of \$2,488.09 to the Depreciation Expense-Business Truck account and a credit of \$2,488.09 to the Accumulated Depreciation-Business Truck account.

3. After we record year 10 depreciation, the book value of the work truck is now \$5,000.

Congrats! The only thing left now is to get top dollar for your company truck.