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What is the difference between method straight-line depreciation and double declining balance depreciation?

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Question ajoutée par Diaa Hosni el sayed Hussein , Chief Accountant , Omar Horizon
Date de publication: 2017/10/24
Utilisateur supprimé
par Utilisateur supprimé

Straight Line Method = Assets Value - Scrap Value / Estimated Life  this is used for Every year

Double declining Method= 1st Year same percentage as decided but in the 2nd year as follow

Assets value - 1st year year depreciation * double rate of depreciation  and so on

Amer Al Sbiei MBA CMA
par Amer Al Sbiei MBA CMA , Senior Accountant , Al Babtain Leblanc Emirates Telecommunication Systems

A straight line depreciation Formula is simple = Asset Value - Salvage Value / Useful years (life of the asset). Basically, the total cost of the asset will be divided by the number of the life of the asset and then you will have your annual depreciation cost.  It is simple and straight forward.

 

The double declining balance: basically puts more weight on the early years of the asset and then the depreciation expense of the asset gets reduced through the year. it is best described in an example: Assume you purchased an asset for $ 100,000 for 5 years. So, the first year depreciation will be

1- 100,000/5 = 20,000 

2- Double it = 20,000* 2 = 40,000 (your depreciation expense for this year)

3- Asset value for next year will be = 60,000

4- Depreciation Expense for next year will be = 60000/5 = 12,000 x 2 = 24000 

And so on.

 

I hope that the answer above helped your in clarifying the differnce

Diaa Hosni el sayed Hussein
par Diaa Hosni el sayed Hussein , Chief Accountant , Omar Horizon

1.  STRAIGHT-LINE DEPRECIATION

It  is  calculated  by  subtracting  an  asset’s  expected  salvage  value  from  its  capitalized  cost,  and

then dividing  this amount by the estimated life  of  the asset. For example,  a candy wrapper machine has

a  cost  of  $50,000  and  an  expected  salvage  value  of  $10,000.  It  is  expected  to  be  in  service  for  eight

years. Given these assumptions, its annual depreciation expense is:

= (Cost – salvage value) /number of years inservice

= ($50,000 – $10,000) /8 years

= $40,000/8 years

= $5,000 depreciation per year

 

2.  DOUBLE DECLINING BALANCE DEPRECIATION

The  double  declining  balance  method  (DDB)  is  the  most  aggressive  depreciation  method  for recognizing  the  bulk  of  the  expense  toward  the  beginning  of  an  asset’s  useful  life.  To  calculate  it, determine  the  straight-line  depreciation  for  an  asset  for  its  first  year  (see  the  last  section  for  the straight-line  calculation).  Then  double  this  amount,  which  yields  the  depreciation  for  the  first  year.

Then  subtract  the  first-year  depreciation  from  the  asset  cost  (using  no  salvage  value  deduction),  and run the same  calculation  again for  the next year. Continue to use this methodology for the  useful life of the  asset. For  example,  a  dry  cleaning machine  costing  $20,000  is  estimated  to  have  a  useful  life of six years. Under the straight-line method, it would have depreciation of $3,333 per year. Consequently, the

first  year  of  depreciation  under  the  200%  DDB  method  would  be  double  that  amount,  or  $6,667.  The

 

calculation for all six years of depreciation is noted in Exhibit.

DOUBLE DECLINING BALANCE