Meru Accounting

The Double Declining Balance Depreciation Method.

As a business owner, a proper calculation of the depreciation value is very important for the organization. Although there are a few types of depreciation methods used for calculating the values of assets, here we will look more particularly into the double declining balance method.

It is a better way to get it with the depreciation of the assets, which can be better for your income statement. There is a specific double-decreasing balance method formula that can easily calculate the depreciation value for the assets.

This method can help you with income taxes in a particular financial year. We will have a detailed look at the double declining method here. This will help you understand its use in a better way.

Double-decreasing depreciation formula:

Here is the formula for the double-decreasing balance depreciation method:

Double Declining Balance Method Formula: 2 X Cost of the asset X Depreciation rate

OR

Double Declining Balance Formula = 2 x Cost of the Asset/Useful Life.

How do I calculate the depreciation-decreasing balance method?

Here are the steps involved in calculating the double declining balance method:

  1. During the time of purchase, note the initial cost of the particular asset.
  2. Determining the salvage value of the assets [it is the value of the assets that can be either disposed of or sold after their useful life is over].
  3. Determine the functional life of the asset.
  4. Calculate the depreciation rate; it is 1/useful life.
  5. Beginning period book value must be multiplied by twice the depreciation rate, which finds the expense of the depreciation.
  6. To calculate the ending period value, multiply the beginning period book value.
  7. All the above steps must be repeated until you get the salvage value.

Are there any disadvantages to using the double declining method?

There are a few disadvantages to using the double declining balance method, which are listed below:

  • Many of the assets are used more often throughout their useful lives. Depreciating them at an accelerated rate using the double-decreasing balance method formula will be of hardly any use.
  • The use of the straight-line method for depreciating the asset value is much easier, while the use of the depreciation declining balance method is more complicated.
  • One of the main reasons to use this method is to show less profitability on income statements. However, it sometimes becomes difficult for the organization to actually calculate operational profitability.

What are the advantages of using the double-decreasing balance method?

1. Speed-up cost recovery

If you have brought any assets on loan, then it can help you repay easily. Here, it will reduce the cost of an asset and the interest over a period of time.

2. Tax deduction benefits

Every business wants to get better with tax deductions. With a proper double-decreasing depreciation formula, you can accelerate the depreciation value of the assets. It can further benefit you in terms of tax deductions.

Using the depreciation declining balance method is a wonderful way to depreciate an asset’s value over its useful life. If you find it difficult to implement it in your organization, then you can outsource this work to the experts.

Meru Accounting provides outsourced services for using the double declining balance method. It will help you achieve the proper accelerated depreciation value for your desired assets. Their expert team has expertise in using the depreciation declining balance method properly. Meru Accounting is a well-known accounting service-providing agency across the globe.