Enter the asset cost, residual value, and the useful life of the asset in years to determine the double-declining depreciation.
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Double Declining Depreciation Formula
The following formula is used to calculate a double declining depreciation.
D = 2 * [ (AC – RV)/L ]
- Where D is the double-declining depreciation
- AC is the asset cost
- RV is the residual value
- L is the useful life of the asset
Double Declining Depreciation Definition
A double-declining depreciation is defined as a method of accounting for the expense of a long-lived asset that depreciates the asset twice as fast as a standard method.
When is a double-declining depreciation used?
A double-declining depreciation is most often used for assets that lose value quickly. Since the double-declining method depreciates an asset twice as fast as the straight-line method, it’s useful to use this method when analyzing or considering assets that lose value quickly suck as machines that deteriorate quickly over time.
Does double-declining depreciation use salvage value?
The double-declining depreciation method does still use salvage value in its equation. This can be seen in the formula presented above. Even though the asset being analyzed most likely depreciates quickly, that does not mean the asset has no salvage value at the end of its useful life.
Why do companies use the double-declining depreciation method?
A company will use a double-declining method when the asset they have loses value faster than a typical asset they own. They also may use the double-declining method when they want to realize the depreciation of the asset sooner than later. Since depreciation can be written off on taxes, if a company has a financial reason to save on some taxes now instead of later, they could use this method.
How to calculate a double-declining depreciation?
- First, determine the total cost of the asset. This is should be the initial cost and the maintenance costs over its lifetime.
- Next, determine the residual value. Determine the value of the asset after its useful life.
- Next, determine the total useful lifetime in years.
- Finally, calculate the yearly double-declining depreciation.
FAQ
A double-declining deprecation is an accelerated model used in accounting to measure the depreciation of an asset. It doubles the typical straight-line deprecation.
This is used in business so that companies can account for worst-case scenario deprecation and allocate resources accordingly.
