Declining-Balance Example

A company bought new cleaning equipment worth $6,000 on August 15, 2024, with an estimated life of 8 years and a salvage value of $300. The company sees the following results from calculating depreciation using double declining-balance depreciation. If the company uses method DB (switch to straight-line when optimal), the system calculates straight-line depreciation figures at the same time to determine when to make the switch. The system calculates the straight-line amount on the remaining basis for each year.

To calculate the rate for the double declining-balance computations, divide the declining-balance percentage by the estimated life: In this example, the depreciable basis for the declining computations is the same as the acquisition value: $6,000.

200% = 25%

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For the first year, during which the equipment was in service only 5 months (August to December using the midmonth convention), the declining-balance depreciation calculation is:

$6,000 x .25 x 5/12 = $625

For subsequent years, you calculate the asset's remaining depreciable basis by subtracting the accumulated depreciation from the depreciable basis.

The second and third year declining-balance calculations are:

Year 2	($6,000 - 625)	x .25 = $1,343.75
Year 3	[$6,000 - (625 + 1,343.75)]	x .25 = $1,007.81

If the company uses method DB (switches to straight-line when optimal), the switch occurs for the year in which the straight-line depreciation is greater than the declining-balance depreciation. This occurs in year 7, when straight-line depreciation is $377.62 and declining-balance is $318.88.