How it’s calculated
Straight-line
- Annual Depreciation
- equals (Cost − Salvage Value) ÷ Useful Life
Double-declining balance
- Rate
- equals 2 ÷ Useful Life
- Annual Depreciation
- equals Book Value at Start of Year × Rate
Declining balance front-loads the expense. Our schedule switches to straight-line over the remaining life once that gives a larger expense, and never takes book value below salvage — the standard way to make the schedule finish exactly at salvage value.
Worked example
A courier buys a delivery van for $42,000. It expects to use it for six years and sell it for $6,000.
- Straight-line: ($42,000 − $6,000) ÷ 6 = $6,000.00 a year
- Declining balance, year 1: $42,000 × (2 ÷ 6) = $14,000.00
- Declining balance, year 2: $28,000.00 × (2 ÷ 6) = $9,333.33
Both methods depreciate the same $36,000 in total; declining balance simply recognizes more of it early, reaching salvage value by year 5.
Assumptions and limitations
- Full-year depreciation in the first year. Many businesses use a partial first year (for example, a half-year or mid-month convention) based on the purchase date.
- Useful life and salvage value are estimates; review them if circumstances change.
- These are book (financial-reporting) methods. They do not calculate tax depreciation.
Results are estimates for information only and are not financial, tax or legal advice. See our disclaimer.