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Sunday, July 18, 2010

Double Declining Balance Method Of Providing Depreciation And Its Calculation

Concept Of Double Decline Method Of Depreciation

According to double declining method, the depreciation is charged on the reducing balance method but the rate of depreciation is determined by multiplying the straight line rate by 2.

Calculation Of Amount Of Depreciation Under Double Declining Balance Method

Purchase price of assets = $ 2,000
Useful life of the assets = 3 Years
Scarp value = $ 200
Required: Annual depreciation under double declining balance method

Solution,

Cost = $ 2000
Scarp value = 0 (under this method scarp value is ignored)
Straight line depreciation per year = 2000-0/3 = $ 667
Rate of depreciation under straight line method= 667/2000 = 33.33%
Double declining balance depreciation rate = 33.33% X 2 = 66.67%
Now,
Depreciation of first year = 2000 x 66.67% = $ 1,333
Depreciation of second year = 666.67 x 66.67% = $ 444
Depreciation of third year = 223 x 66.67% = $ 147