This page illustrates the computation of the straight-line and double-declining balance methods of depreciation using the following example.

Cost of Asset 10,500 Salvage Value 500 Life 5 years 1. Straight-Line Depreciation Note that the straight line calculation considers salvage value up front in the calculation. 10,500 cost - 500 salvage value = 2,000 per year ------------------------------- 5 year life Depreciation Accumulated Book Year Cost Expense Depreciation Value ---- -------- ------------- ------------- -------- 1 10,500 2,000 2,000 8,500 2 10,500 2,000 4,000 6,500 3 10,500 2,000 6,000 4,500 4 10,500 2,000 8,000 2,500 5 10,500 2,000 10,000 500 2. Double-declining Balance Depreciation The double-declining balance method ignores salvage value in the initial calculation. However, depreciation expense will be limited if the calculated amount would result in the book value dropping below the salvage value. For example, suppose an asset has a prior book value of $600 and a salvage value of $500. In this case, depreciation expense is limited to the remaining $100 book value in excess of salvage value. Also, each year comparisons are made between the declining balance rate calculations and straight-line depreciation of the remaining book value. A switch to the straight-line calculation is made in the year in which the straight-line calculation exceeds the declining balance rate calculation. > DDB rate = 1/Life x 2 = 1/5 x 2 = 40% > Declining balance rate depreciation = Beginning of period carrying value x DDB rate Calculations ----------------------------------------------------- Year DDB Straight-Line ---- ---------------------- ------------------------- 1 10,500 x 40% = 4,200 (10,500 - 500)/5 = 2,000 2 6,300 x 40% = 2,520 ( 6,300 - 500)/4 = 1,450 3 3,780 x 40% = 1,512 ( 3,780 - 500)/3 = 1,093 4 2,268 x 40% = 907 ( 2,268 - 500)/2 = 884 5 1,361 x 40% = 544 ( 1,361 - 500)/1 = 861 Note: Switch to straight-line in year 5 since its calculation exceeds the DDB calculation. Depreciation Accumulated Book Year Cost Expense Depreciation Value ---- -------- ------------- ------------- -------- 1 10,500 4,200 4,200 6,300 2 10,500 2,520 6,720 3,780 3 10,500 1,512 8,232 2,268 4 10,500 907 9,139 1,361 5 10,500 861 10,000 500