Declining balance depreciation applies a fixed percentage to an asset's remaining book value each year, front-loading expense into the early years.
Declining balance depreciation (also called reducing balance depreciation) is a method that charges a fixed percentage of an asset’s remaining book value each year, rather than a fixed amount. Because the base shrinks every year, the depreciation expense is largest in year one and falls steadily after that - front-loading the cost into the years when the asset actually loses most of its value.
How it works
Annual depreciation = depreciation rate × book value at the start of the year.
The rate is fixed; the base is whatever value is left. Note what is missing from the formula: salvage value is not subtracted up front as it is in straight-line. Instead it acts as a floor - the asset is never written down below it.
A percentage of a remainder never quite reaches zero, so every declining balance schedule needs an ending: either depreciation stops when book value hits the salvage value, or the method switches to straight-line for the final years so the asset fully writes down on time.
Double declining balance
The most common way to set the rate is to double the straight-line rate. A five-year asset has a straight-line rate of 20% (one fifth per year), so double declining balance uses 40%. Other multipliers exist - 150% declining balance uses 1.5× - but the doubling variant is the default most people mean by “the declining balance method”.
A worked example
A €1,000 tablet with a five-year life and €100 salvage value, on double declining balance at 40%:
- Year 1: 40% × 1,000 = €400 charged, book value €600
- Year 2: 40% × 600 = €240 charged, book value €360
- Year 3: 40% × 360 = €144 charged, book value €216
- Year 4: 40% × 216 = €86.40 charged, book value €129.60
- Year 5: only €29.60 is charged, stopping at the €100 salvage floor
Over two thirds of the total depreciation lands in the first two years - which is roughly what the secondhand market does to a tablet’s price anyway.
When to prefer it over straight-line
Declining balance fits equipment whose value drops fastest early: phones, tablets, laptops, printers and most consumer-grade tech. Matching the expense to the real resale curve keeps book values honest, so a two-year-old device is not carried at an optimistic figure nobody would pay. It also pairs naturally with assets whose running costs rise with age - early years carry high depreciation and low maintenance, later years the reverse, which smooths the picture of total cost of ownership.
Some tax regimes calculate capital allowances on a reducing-balance basis, which is a separate calculation from book depreciation - the rules vary by country, so check locally rather than assuming the two match.
Straight-line remains the better default for evenly wearing assets (furniture, fit-outs, steady-duty machinery) and for anyone who values a flat, predictable charge over precision.
Declining balance in practice
The method demands slightly more bookkeeping than straight-line - each year’s charge depends on last year’s closing book value, so the purchase price, purchase date and disposal date of every capitalised item (CapEx, in budget terms) need to be reliably recorded. In AMPthilly, purchase price, date and expected useful life live on each asset record, with valuation and depreciation tracking available on the Pro plan and CSV export for handing the figures to finance.
Related terms
- Salvage Value - the floor below which the asset is never written down
- Book Value - the shrinking base the rate is applied to each year
- CapEx - the capital purchases that get depreciated in the first place
- OpEx - operating costs expensed immediately rather than spread over years
- Total Cost of Ownership - the full lifetime cost picture depreciation feeds into