Depreciation

Question 1

Double Declining Balance

Answer 1

Double-declining balance (200% declining balance) is an accelerated depreciation method that applies a rate double that of straight-line (originally based on the method used for tax purposes). It is based on the assumption that the productivity or revenue-generating power of the asset is relatively greater during the earlier years of its life, or that maintenance expenses tend to increase during the later years. It produces results similar to the sum-of-the-years’-digits method.

The computation is double the straight-line (SL) rate times the carrying amount of the asset:

DDB depreciation expense = 200% SL rate × Carrying amount

Depreciation is discontinued when the carrying amount equals the residual value.

Declining balance can also be applied at a different rate, e.g., 150% of straight-line.

Question 2

Composite Depreciation and Sale of Asset

Answer 2

When applying group or composite depreciation methods, when one sells an asset, the cost of the asset is removed, and the accumulated depreciation is assumed to be equal to the difference between cash received and cost. When the asset cost and this accumulated depreciation amount are both removed, the carrying amount of the asset accounts is decreased by the cash proceeds exactly.