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The next method is double declining balance.

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This method is a type of accelerated depreciation method.

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This means that in the initial years, we will be depreciating the asset more and in the later years

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the depreciation will be less.

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We do this because practically, if you see any asset loses more value in the initial years, for example,

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when we buy a car.

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Just after buying the car, when you take that car out of the showroom, the value of that car decreases.

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So if you bought a car for twenty thousand dollars just after a few days, it will be valued at probably

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sixteen thousand or fifteen thousand dollars in the resale market.

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After one or two years, it'll be probably 10, twelve thousand dollars, but after eight or nine years,

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the decrease in value after each year will not be significant.

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The value of the car will more depend on the condition of the car and not on the age of the car.

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After that.

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So to accommodate this practical scenario where the value of assets decreases more in the initial years

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and less in the later years, we use accelerated depreciation methods.

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Now, how do we calculate depreciation and double declining balance matter for this?

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We use a rate of depreciation.

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Rate of depreciation simply means the rate at which we will decrease the value of the asset.

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And this rate is just the double of the straight line depreciation rate, for example, if the life

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of an asset is favored by the straight-line method, we will be depreciating it by 20 percent each year.

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However, in the declining balance, method will be depreciating it at twice that rate, that is, will

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they appreciate that asset at 40 percent each year?

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So this formula also calculate the same thing.

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If the useful life of an asset is 10 years, you divide hundred by ten, you get 10 percent and you

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multiply it by two because it is double declining balance to get 20 percent.

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So far as it has 10 years of life, the rate of depreciation will be 20 percent.

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Let's take an example.

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Suppose you buy an asset of fifty thousand dollars with the useful life of five years.

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Now know that when we are calculating the rate of depreciation and the declining balance budget, we

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do not take the salvage value.

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We adjust the depreciation value of lost one or two years to accommodate the salvage value.

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So for most of the year, we just do double declining balance.

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In the last one or two years, we will tweak the value so that we accommodate the salvage value.

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So here we do not accommodate the salvage value when we are calculating the rate of depreciation.

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So as it was bought for fifty thousand dollars, useful life is five years.

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We calculate the rate by using this formula.

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Hundred divided by five gets 20 percent, you multiply it by two, we get 40 percent.

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So each year we have to reduce the value of assets by 40 percent.

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So first year, 40 percent of.

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Fifty thousand comes out to be 20000.

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So the depreciation value is twenty thousand and the value of asset after first year is thirty thousand.

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Now, in the next year, also, we will depreciated by 40 percent.

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Which means that 40 percent of 30000 is 12000.

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So the appreciation value will be 12000 and the value of asset after second year will be 18000.

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So first year depreciation values 20000, second year depreciation values 12000 and so on.

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So depreciation value will be more in the initial years and it will be less in the later period of time.