Declining Balance Depreciation

What is this formula?

The Declining Balance Depreciation formula calculates depreciation as a fixed percentage of the asset's book value at the beginning of each period. Because the book value decreases over time, the depreciation expense also declines each year.

When to use it

Use this method when an asset is expected to lose value more rapidly during its early years of service. It is commonly used for equipment, vehicles, computers, and technology assets that experience accelerated obsolescence.

Example

A machine has a beginning book value of $40,000.

Data:

Book Value = $40,000

Depreciation Rate = 20% = 0.20

Formula:

D=r*BV

Substitution:

D=0.20*40,000

D=8,000

Result:

Depreciation expense for the year = $8,000

Applications

Accelerated depreciation accounting

Asset management

Equipment valuation

Financial reporting

Capital investment analysis

Note

This method is an accounting model rather than a physical law. The depreciation rate is selected according to accounting policies, regulations, or management assumptions. Different jurisdictions may prescribe different rates or calculation procedures, and alternative accelerated depreciation methods are widely used.