The Most Aggressive Accelerated Depreciation Method
What is Double-Declining Balance?
Double-Declining Balance (DDB) is an accelerated depreciation method that depreciates assets at twice the rate of straight-line depreciation. It’s called “double-declining” because the depreciation rate is 200% (double) of the straight-line rate, and the “balance” (book value) declines each year.
Why “Double-Declining”?
Straight-Line Rate: If an asset has a 10-year life, the straight-line rate is 10% per year (100% ÷ 10 years)
Double-Declining Rate: The DDB rate is 20% per year (2 × 10%)
Applied to Book Value: Unlike straight-line which uses the depreciable base, DDB applies this 20% rate to the declining book value each year.
When to Use DDB
DDB is ideal for assets that:
- Lose value rapidly in early years (vehicles, technology)
- Are most productive when new (computers, machinery)
- Become obsolete quickly (software, electronics)
- Require higher maintenance costs as they age
- Benefit from maximum early tax deductions
Manual Calculation Method
Before using Excel’s DDB function, it’s essential to understand how to calculate double-declining balance depreciation manually.
Example Asset Information
Asset: Company Vehicle
Cost: $30,000
Salvage Value: $5,000
Useful Life: 5 years
Under the double-declining balance approach, the asset’s residual (salvage) value is not part of the formula used to compute each year’s depreciation. Instead of reducing the asset’s cost by its salvage value upfront, depreciation is calculated by applying a constant accelerated rate to the asset’s beginning-of-period book value.
Because of this, the expected salvage value does not change the amount of depreciation recorded in the early years. Its role comes into play near the end of the asset’s life, when depreciation must be limited so that the remaining book value is never written down below the asset’s estimated salvage amount.
Step 1: Calculate the Depreciation Rate
DDB Rate = 2 × Straight-Line Rate = 2 × 20% = 40%
The DDB rate is always double the straight-line rate. For a 5-year asset, it’s 40%. For a 10-year asset, it would be 20%.
Step 2: Calculate Year 1 Depreciation
Year 1 Depreciation = Book Value × DDB Rate
Year 1 Depreciation = $30,000 × 40% = $12,000
Ending Book Value = $30,000 – $12,000 = $18,000
Important: DDB uses the full cost, NOT the depreciable base. Salvage value serves as a floor.
Step 3: Calculate Year 2 Depreciation
Year 2 Depreciation = Book Value × DDB Rate
Year 2 Depreciation = $18,000 × 40% = $7,200
Ending Book Value = $18,000 – $7,200 = $10,800
Notice the depreciation decreased from $12,000 to $7,200 because we apply the 40% rate to a lower book value.
Step 4: Continue for Remaining Years
| Year | Beginning Book Value | Depreciation (40%) | Ending Book Value |
|---|---|---|---|
| 1 | $30,000 | $12,000 | $18,000 |
| 2 | $18,000 | $7,200 | $10,800 |
| 3 | $10,800 | $4,320 | $6,480 |
| 4 | $6,480 | $1,480 (adjusted to reach salvage) | $5,000 |
| 5 | $5,000 | $0 | $5,000 |
Year 4 Adjustment: We cannot depreciate below salvage value. Instead of $2,592, we only depreciate $1,480 to reach exactly $5,000.
Key Takeaways from Manual Calculation
- DDB uses book value, not depreciable base
- Salvage value is a floor, not part of the calculation
- Depreciation decreases each year
- The rate is constant, the base is declining
- You may reach salvage value before useful life ends
The DDB Formula
General Formula
Annual Depreciation = Beginning Book Value × DDB Rate BUT: Never depreciate below Salvage Value
Excel DDB Function
The Syntax for the Excel DDB function = DDB(cost, salvage, life, period, [factor])
| Argument   | Description |
|---|---|
| Cost | The original cost of the asset |
| Salvage | The estimated value of the asset at the end of its expected useful life |
| Life | The useful life of the asset. It is the number of periods over which the asset is being depreciated |
| Period | The period for which you want to calculate the depreciation. |
| [Factor] | Optional – The rate at which the balance declines. If not used the default is 2. |
Excel DDB Function Notes
Period Parameter: Enter 1 for Year 1, 2 for Year 2, etc.
Factor Parameter: Defaults to 2. Can specify 1.5 for 150% declining balance.
Automatic Salvage Protection: Excel’s DDB function automatically stops at salvage value!
💻 Interactive DDB Calculator
Calculate double-declining balance depreciation for all years. See how depreciation decreases over time and stops at salvage value.
Complete Depreciation Schedule
| Year | Beginning Book Value | Rate | Depreciation | Accumulated Dep. | Ending Book Value |
|---|
🎓 Test Your Knowledge
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