Declining-Balance Depreciation

The equation for calculating 200% declining-balance depreciation is:

Acquisition Cost - Accumulated Depreciation

Life in Years

Annual Depreciation

In addition to 200% declining-balance depreciation, the system also offers 125%, 150%, and 175% declining-balance depreciation. To use these depreciation methods, instead of multiplying by 2 in the above equation, you would multiply by 1.25, 1.5, or 1.75 respectively.

Note: The asset's net book value (acquisition cost minus its accumulated depreciation) is multiplied by a fixed rate. Because the net book value decreases each year (since the accumulated depreciation increases each year), the amount of depreciation decreases each year. Although the salvage value is not deducted from the asset's cost in this depreciation method, the asset cannot be depreciated below its salvage value.

Using the declining-balance depreciation method for each year of an asset's' life will never completely depreciate the asset, unless you switch from declining-balance depreciation to straight-line depreciation. Some declining-balance depreciation methods switch automatically to straight-line depreciation when straight-line depreciation is equal to or greater than declining-balance depreciation.

Here is an example without a switch to straight-line depreciation:

Placed-in-Service Date:	01/01/2021
Machinery Cost:	$16,000
Salvage Value:	$1,000
Useful Life:	5 years

Year 1:

16,000

5 Years

$6,400 per year

Year 2:

16,000 - 6,400

5 Years

$3,840 per year

Year 3:

16,000 - 10,240

5 Years

$2,304 per year

Year 4:

16,000 - 12,544

5 Years

$1,382.40 per year

Year 5:

16,000 - 13,926.40

5 Years

$829.44 per year

Note: After year 5, the asset's accumulated depreciation is $14,755.84, and its net book value is $1,244.16. You cannot continue to use the declining-balance depreciation method because the net book value would be lower than the asset's salvage value ($1,000). Therefore, you never completely depreciate the asset.