The Significance of DoubleDeclining Depreciation as a Cost Recovery Tool
What is DoubleDeclining Depreciation?
Doubledeclining depreciation is a method of calculating depreciation costs that stem from the declining balance depreciation. Details about the latter were discussed in a separate article DecliningBalance Depreciation: Explanations and Examples. The rationale behind these two methods is the allocation or recovery of acquisition cost based on the performance of the fixed asset during the peak years of its useful life, and not necessarily on the number of years that the asset will be put into use.
In using this method, the same mechanics of using the net book value (acquisition cost less accumulated depreciation cost) as the base amount for calculating the annual depreciation is observed.
However, the rate of annual depreciation will be doubled by multiplying the depreciation rate at 200% instead of 100%.
At this point, the significance of the doubled effect is still unclear; hence explanations and examples for this depreciation method illustrate its calculations and effect.
Example of the DoubleDeclining Depreciation Calculation
The following givens are used as the basis for computations:
A complete set of office furniture is bought on January 1 at an acquisition cost of $50,000 and has an estimated useful life of 8 years based on IRS standards for estimated useful life. A scrap value of $2,000 will be recognized at the end of the 8th year.
Rate of Annual Depreciation formula for this equipment = 1/8 x 200%
= 0.125 x 200% = 25%
Rate of Annual Depreciation = 25%
Computation of Yearly Depreciation Costs Based on DoubleDeclining Depreciation Method
Similar to the mechanics of the declining balance depreciation, you have to refer to the running balance of the accumulated depreciation account to determine the amount deducted from the acquisition cost.

1st year = $50,000 x 25% = $12,500

2nd year = ($50,000  $12,500) x 25% = $37,500 x 25% = $9,375

3rd year = ($50,000  $21,875) x 25% = $28,125 x 25% = $7,031

4th year = ($50,000  $28,906) = $21,094 x 25% = $5,273

5th year = ($50,000  $34,179) x 25% = $15,821 x 25% = $3,955

6th year = ($50,000  $38,134) x 25% = $11,866 x 25% = $2,966

7th year = ($50,000  $41,100) x 25% = $8,900 x 25% = $2,225

8th year = ($50,000  $43,325) x 25% = $6,675 – Scrap Value of $5,000 = $1,675
Running Balance of Accumulated Depreciation:
 1st year = 0.00 + $12,500 = $ 12,500
 2nd year = $12,500 + $9,375 = $21, 875
 3rd year = $21,875 + $7,031 = $28,906
 4th year = $28,906 + $5,273 = $34,179
 5th year = $34,179 + $3,955 = $38,134
 6th year = $38,134 + $2,966 = $41,100
 7th year = $41,100 + $2,225 = $43,325
 8th year = $43,325 + $1,675 = $45, 000
Explaining the Effect of DoubleDeclining Depreciation by Comparing It vs. the StraightLine Method
In order to appreciate the significance of this method of depreciation, let us compute the annual depreciation costs produced by the straightline method.
Annual Depreciation – Straight Line = ($50,000 – S.V. $5,000) / 8 years’ estimated life
= $45,000 / 8 years
= $5,625 per year
In comparing the total depreciation expense for the first three years, it shows that had the straightline method been used, accumulated depreciation would have amounted to only $16,875; as against the amount of $28,906 accumulated by the doubledeclining method as of the 3rd year. Hence, cost recovery was faster during the asset’s peak years.
Further compare the total amount of depreciation recognized from the 4th year to the 8th year:
 StraightLine method = 5 years x $5,625 = $28,125
 Double Declining Method = $45,000  $28,906 = $16,094
The significance of this method is that the allocated costs become much lower at a time when cost of repairs becomes inevitable–hence lessening the burden of cost allocation during these periods.
Based on the US GAAP Accounting Study Guide, the doubledeclining method can be modified by multiplying the fraction of years by 150% instead of 200%.
Image Credit: Performance Reference Model