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Declining-Balance Method

[dih-KLY-ning BAL-uhns METH-uhd]

What is the definition of Declining-Balance Method?
An accelerated depreciation method that applies a constant depreciation rate, which is a multiple of the straight-line rate, to the declining book value (carrying value) of a tangible long-lived asset each period.
Using Declining-Balance Method in an Example

For example, if a company purchases machinery for $100,000 and uses the double declining-balance method with a straight-line rate of 10%, the depreciation expense in the first year would be $20,000 (20% of $100,000). In the second year, the depreciation expense would be $16,000 (20% of the remaining book value of $80,000), and so on, until the asset's value is fully depreciated or reaches its salvage value.

Using Declining-Balance Method in a sentence

Our accountant recommended using the declining-balance method for our new equipment to maximize our depreciation deductions in the early years.

Related Terms

DDB

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Double-Declining-Balance Depreciation Method (DDB)

An accelerated depreciation method approved by the Internal Revenue Service (IRS) that allows depreciation at twice the rate of the straight-line method over the asset's useful life.
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