A double-declining schedule uses twice the straight-line rate for the supported life. Apply that rate to opening carrying amount each period. Because the base falls, expense also falls until the salvage floor limits the final charge.
Two features of that computation catch people out. The rate is applied to carrying amount, not to the depreciable amount, so salvage is not subtracted before computing the annual charge. Salvage instead sets a floor: the asset stops being depreciated once carrying amount reaches it, and the final year's charge is whatever brings it there.
The pattern can fit an asset that provides more service early. It can also fit an asset whose repair costs rise with age. Compared with straight-line, it moves more depreciation into earlier periods and less into later ones. A method change can therefore move reported income without changing the asset.
Apply the rate and the floor in order
Apply the supported fixed rate to opening carrying amount. Do not subtract salvage value before applying the rate. After computing the provisional charge, limit expense so ending carrying amount does not cross the supported salvage floor. The final period can therefore require a smaller amount.
ASC 360-10-35-7 identifies declining balance as systematic and rational when expected productivity or revenue capacity is relatively greater early in the asset's life. A high first-year charge alone does not prove that pattern.
Use the method comparison example and reconcile the rate and ending carrying amount in checked method practice.
Put the concept to work
Understand this concept
- Explain the allocation pattern this method produces and the consumption evidence that would make it the appropriate choice for a given asset.
Analyze this concept
- Predict how this method's early-year and late-year expense compares with the alternatives for the same asset, and what the choice does to reported income and to carrying amount over the life.
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Build on these ideas
- Declining-balance depreciation — Understand
To analyze this concept: Required. Comparing patterns requires knowing the pattern.
- Depreciation method — Understand
To understand this concept: Required. A named method is one pattern within the general choice.
- Salvage value — Understand
To analyze this concept: Required. Methods differ in whether salvage bounds the annual charge or the ending amount.
Show 1 more prerequisites
- Useful life — Understand
To understand this concept: Required. Every pattern allocates across a selected life.
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Related concepts
Show 1 more related concepts
Use this idea next
- Declining-balance depreciation — Analyze
Required level here: understand. Required. Comparing patterns requires knowing the pattern.