Teach DDB method step by step, compare with straight-line in business terms
The Double-Declining Balance Method
Sarah's accountant shows her how DDB works. The key difference from straight-line: instead of dividing the depreciable base by years, you apply a double rateto the asset's current book value each year.
DDB Rate = 2 × (1 ÷ Useful Life)
For a 5-year asset: DDB Rate = 2 × (1 ÷ 5) = 2 × 0.20 = 40%
Year 1 Expense = $30,000 × 40% = $12,000
Step-by-Step Breakdown
Find the DDB rate
Double the straight-line rate. For a 5-year asset: 2 × (1/5) = 40%.
DDB Rate = 2 × 20% = 40%
Multiply rate by beginning book value
Unlike straight-line, you do NOT subtract salvage value first. Apply the rate directly to the book value at the start of each year.
Year 1: $30,000 × 40% = $12,000
Check the salvage value floor
If the calculated expense would push book value below salvage value, reduce the expense so book value equals salvage value exactly.
DDB vs Straight-Line: Side by Side
| Year | DDB Expense | DDB Book Value | SL Expense | SL Book Value | Difference |
|---|---|---|---|---|---|
| Year 1 | $12,000 | $18,000 | $5,000 | $25,000 | +$7,000 |
| Year 2 | $7,200 | $10,800 | $5,000 | $20,000 | +$2,200 |
| Year 3 | $4,320 | $6,480 | $5,000 | $15,000 | $-680 |
| Year 4 | $1,480 | $5,000 | $5,000 | $10,000 | $-3,520 |
| Year 5 | $0 | $5,000 | $5,000 | $5,000 | $-5,000 |
Notice: DDB records $12,000 in Year 1 vs straight-line's $5,000. That is $7,000 more expense — and $7,000 less reported profit — in the first year alone.
Why Choose DDB?
Higher early-year expenses mean lower reported profit, which means lower taxes in the early years. This keeps more cash in the business when it is growing.
Vehicles, computers, and equipment lose more value early. DDB matches the expense pattern to the actual economic loss.
Critical rule: Under DDB, you do NOT subtract salvage value before calculating the expense. The salvage value only acts as a floor — book value can never go below it.