Method that allocates the net book value (cost - accumulated depreciation), of an asset over its useful life based on a multiple of the straight-line rate, which gives more depreciation to early years and less to later years of an assets life.
If an asset is considered to be more productive when it is newer, managers might choose this method to match higher depreciation expense with higher revenues in early years and lower depreciation expense with lower revenues in later years.
This is an Accelerated Depreciation Method
Based on applying a rate exceeding the straight-line rate to the asset's net book value over time.
The rate is often double the straight-line rate and is termed the double-declining-balance rate.
ex: if straight-line rate is 10% (1 ÷ 10 years) for a 10-year estimated useful life, the declining-balance rate is 20% (2 × the straight-line rate).
Accumulated Depreciation increases over time.
IMPORTANT DIFFERENCES FROM OTHER METHODS!!
1. Accumulated depreciation, not residual value, is included in the formula.
Since accumulated depreciation increases each year, net book value decreases.
The double-declining rate is applied to a lower net book value each year, resulting in a decline in depreciation expense over time.
2. As with the other methods, the net book value should not be depreciated below the residual value:
Occasionally, before the end of the estimated useful life, if the annual computation reduces net book value below residual value, only the amount of depreciation expense needed to make net book value equal to residual value is recorded, and no additional depreciation expense is computed in subsequent years.
More likely, in the last year of the asset's estimated useful life, whatever amount is needed to bring net book value to residual value is recorded, regardless of the amount of the computation.
An asset should never be depreciated below the point at which net book value = residual value.