What is Declining Balance Depreciation?
Declining balance depreciation is an accelerated method that charges more depreciation expense in the early years of an asset's life and less later on, based on a fixed percentage of the asset's remaining book value.
Declining balance depreciation applies a fixed rate to the asset's beginning-of-year book value each period: Depreciation Expense = Book Value × Depreciation Rate, so the expense shrinks every year.
Try it: interactive calculator
Step-by-step worked examples
A machine costs $20,000. Using the double-declining balance method with a 5-year useful life (rate = 40%), find year 1 depreciation.
Rate = 2/5 = 40% Year 1 depreciation = 20,000 × 0.40 = $8,000 End-of-year book value = 20,000 − 8,000 = $12,000
Using the same machine, find year 2 depreciation.
Beginning book value (year 2) = $12,000 Year 2 depreciation = 12,000 × 0.40 = $4,800 End-of-year book value = 12,000 − 4,800 = $7,200
Equipment costs $15,000 with a depreciation rate of 25%. Find the depreciation expense for year 1 and the resulting book value.
Year 1 depreciation = 15,000 × 0.25 = $3,750 Book value = 15,000 − 3,750 = $11,250
Flashcards
Quick quiz
Q1.An asset has a $10,000 beginning book value and a 20% declining balance rate. What is this year's depreciation?
Q2.Under declining balance, depreciation expense over time is…
Q3.For double-declining balance with a 10-year useful life, what is the rate?
Q4.What value does declining balance depreciation apply the rate to?
The full card deck, worked steps and AI-tutor support for “What is Declining Balance Depreciation?” are in Notek — study by hand before your exam.
Common mistakes
Applying the rate to the original cost every year. — Correct: Apply the rate to the beginning book value of the current year, which shrinks over time.
Letting book value drop below salvage value. — Correct: Stop depreciating once book value equals the salvage value.
Assuming depreciation expense is the same as straight-line. — Correct: Declining balance is accelerated — larger expense early, smaller later.
Forgetting the rate is usually a multiple of the straight-line rate. — Correct: Double-declining balance uses 2 × (1/Useful Life) as its rate.
FAQ
What is declining balance depreciation?
An accelerated method that charges a fixed percentage of the asset's remaining book value each year, front-loading depreciation expense.
What is the declining balance depreciation formula?
Depreciation Expense = Beginning Book Value × Depreciation Rate.
How do you calculate declining balance depreciation?
Multiply the asset's book value at the start of the year by the depreciation rate, then subtract the result from book value to get next year's starting balance.
What are examples of declining balance depreciation?
A $20,000 machine at a 40% double-declining rate depreciates $8,000 in year 1 and $4,800 in year 2, decreasing every year after.