double-declining-balance depreciation

Drive a new car off the lot and it loses a chunk of its value almost immediately; a phone or laptop is most valuable when brand new and gets cheaper fast. For assets like these, charging the same depreciation every year feels wrong — they really lose value front-loaded, heavy at first and lighter later. Double-declining-balance depreciation is built for exactly that pattern: it takes big bites of depreciation in the early years and smaller bites as the asset ages.

Double-declining-balance is an accelerated method. It applies a fixed rate — double the straight-line rate — to the asset's current book value (not its original cost) each year. The straight-line rate for a 5-year asset is 1/5 = 20%, so the DDB rate is 40%. You multiply 40% by the book value at the start of each year; because book value shrinks, the expense shrinks too. Importantly, salvage value is ignored in the yearly calculation but acts as a floor: you stop depreciating once book value reaches salvage value, and the final year is often adjusted so book value lands exactly on salvage value. For a 10,000 asset (5-year life), year 1 = 40% × 10,000 = 4,000; year 2 = 40% × 6,000 = 2,400; and so on, each year smaller.

Accelerated methods like this matter for two reasons. First, they better match the reality that many assets are most productive and lose value fastest when new. Second, and very practically, taking more depreciation early lowers taxable income early, deferring tax — a real cash benefit through the time value of money. Many companies therefore use accelerated methods (or tax-specific systems like MACRS) for tax purposes while using straight-line for their published financial statements. The key trap for beginners: you apply the rate to declining book value, and you do not subtract salvage value before applying it.