How is Double-Declining-Balance Depreciation calculated?

The double-declining-balance (DDB) method of depreciation is designed to accelerate the depreciation expense recognized in the earlier years of an asset's useful life. The calculation begins with the asset's net book value (which is its original cost minus accumulated depreciation) and applies a rate that is double that of the straight-line method, hence the name "double-declining."

To calculate DDB depreciation, the formula involves taking the net book value of the asset and multiplying it by twice the straight-line depreciation rate. The straight-line rate is calculated as 1 divided by the useful life in years. Therefore, by using the formula as stated in the correct answer, Net Book Value is multiplied by [(1 / Useful life in years) x 2], effectively allowing for a larger depreciation expense early on, which reflects the greater utility and value loss during these years.

This method is particularly useful for assets that lose value quickly or become obsolete rapidly. The DDB method results in higher depreciation expense in the first few years and progressively less in subsequent years, as the declining balance of the asset is applied.