Which of the following best describes the double-declining balance (DDB) method of depreciation?

• A. It depreciates an asset only when it is used, based on actual usage or output.
• B. It calculates depreciation based on the sum of the years' digits of the asset's useful life.
• C. It allocates the same amount of depreciation expense each year over the asset's useful life.
• D. It is an accelerated depreciation method that applies twice the straight-line rate to the asset's book value at the beginning of each year.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of the double-declining balance (DDB) method of depreciation. It is an accelerated depreciation method, meaning it allocates more depreciation expense in the earlier years of an asset's useful life compared to later years.
2. Step 2: Recognize that the DDB method applies twice the straight-line depreciation rate to the asset's book value at the beginning of each year. This is why it is referred to as 'double-declining.'
3. Step 3: Note that the DDB method does not depend on actual usage or output of the asset, nor does it use the sum of the years' digits method or allocate the same depreciation expense each year. These are characteristics of other depreciation methods.
4. Step 4: To calculate depreciation using the DDB method, first determine the straight-line depreciation rate by dividing 1 by the asset's useful life in years. Then, multiply this rate by 2 to get the double-declining rate.
5. Step 5: Apply the double-declining rate to the asset's book value at the beginning of each year to calculate the depreciation expense for that year. Continue this process annually, ensuring the asset's book value does not fall below its salvage value.