Double-declining balance method

A plant costs 6,000,000 and is expected to last 6 years. Its salvage value is negligible. Calculate the rate of depreciation using the double declining balance method. 

But earnings are not the only consideration. In 1968 the Union Carbide Corporation, along with many other companies, had a very bad year financially. In order to make its financial picture look better it switched from the double declining balance method of depreciation to the straight-line method. This reduced expenses (deprecitation being considered an expense) and hence increased profits. This is a semipermanent move, however, since a return to the double declining balance method would require approval of the Internal Revenue Service. 

Problem 2. Why is the salvage value not considered when depreciation for the double declining balance method is calculated ... 

It has a salvage value of 2000,000 and a net salvage value of 1,200,000. Assume the plant will last 7 years. Use (a) straight-line depreciation (b) double declining balance method (c) sum of the years-digits method... 

When the fraction r is chosen to be 2/s, i.e., twice the reciprocal of the service life s, the method is called the double-declining-balance method. 

ItBased on the 1954 tax revision for depreciation accounting, any method could be used if the depreciation for the first two-thirds of the usefid life of the properly did not exceed the total of such allowances if they had been computed by the double declining-balance method. 

Double declining balance method This method is used to accommodate Federal laws of 1954 which permitted depreciation rates not more than twice the straight-line depreciation. 

For Part (d), the double declining-balance method, with d = 0.2 > 0.173 above, the salvage value is reached by the book value before 10 yr. As shown in the table, it is reached in year 9, so that no depreciation is taken in year 10. In Part (e), the combination method switches from the double declining-balance method to the straight-line method in year 6, such that the book value becomes the salvage value in year 10. For these two methods, the depreciation is greatly accelerated over the straight-line method in the first 4 yr. ... 

A discussion of three representative depreciation methods that have been widely used to determine the depreciation allowed each year is provided. Currently, only the straight line and double declining balance methods are approved by the IRS. The sum of the years digits method has been used previously and is included here for conpleteness. 

The double declining balance method has the largest depreciation in the early years. 

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