Alright. So let's learn a trickier depreciation method, The double declining balance method. So remember when we're talking about depreciation, we're talking about buying a fixed asset something that we're gonna use for a long time and something that we're probably gonna spend a lot of money on and we want to break up that cost over the useful life of that asset. So we're going to use it for multiple years. What we want that cost to be split up over those years. So whenever we calculate depreciation in regardless of what method we're using, we're gonna focus on three variables here. Okay. The three variables we need to know is the cost. How much did we spend on the asset? Right. And they're generally just going to give you these numbers in every problem. They'll tell you the cost and then they're going to estimate a useful life. And this is how long the company expects the asset to help generate revenue, right? How long are they gonna be able to use this asset? And the residual value, That's how much the company expects the asset to be worth after they're done using it. Right? The residual value after they're done. So remember that these two the useful life and the residual value. These are both estimated. Okay. These have to be estimated by the company. They're not going to be Uh you can't know ahead of time, right? You buy a truck, you can't really know how long the truck's gonna last, you, is it gonna last you five years, 10 years? Who knows? Right? So you have to make your best guess and remember that residual value sometimes called salvage value or scrap value, right? There's different names and different ways to interpret that, that residual value. So we're gonna be focusing on the declining balance method in this video and there's different types of declining balance. But in in your class, we just focus on the double declining balance and that's the most common declining balance method. Okay, so the declining balance method, it's an accelerated depreciation method. So remember, regardless of what method you use, you're gonna take the same amount of depreciation, right? There's gonna be some depreciation base, some amount of of the assets value that you're going to depreciate. So it's just a matter of how you split up that depreciation and that's what the methods are gonna split up differently. So the declining balance, it's gonna accelerate depreciation. And what that means is that it's going to front load it in the first few years we're going to take more depreciation and then in the last few years we'll take less depreciation. Okay, so more depreciation is taken in the early years. And what is what would be the benefit to that? Why do we want to take more depreciation in the early years, remember depreciation is an expense and it's going to lower our income, right? If we have higher expenses, well, higher expenses lead to lower income in the early years. And when we have lower income? Well, that means we pay less taxes. Okay? So the benefit of using this type of method is that it it allows us to pay less taxes. And usually when we when we do depreciation for the I. R. S. Uh for for our tax purposes we're gonna use some sort of accelerated method. Okay. And you deal with that more in later classes. How this deals with with taxes and all that. But for now we're gonna focus on just how we calculate it. Okay, so like I said, we're gonna focus there's different types of declining balance but we're focused on the double declining balance which abbreviated to the D. D. B. Double declining balance method. Okay? So let's go through the steps the steps for calculating double declining balance depreciation. And then we'll do an example. Okay so the first step we want to do is we want to calculate we want to calculate the double declining balance depreciation rate. Okay this isn't the amount of depreciation, this is a rate of the of the value that we're going to depreciate each year. Okay so we're gonna use this same rate every year and this is not the depreciation expense. Right? So before when we had our straight line depreciation. Well we calculated the depreciation expense right away. Okay here we're just calculating a rate And what that is. It's one divided by the useful life. So we're gonna use the useful life here and then we multiply it by by two that multiplying it by two. That's the double declining balance. Okay, That's why we're doing the double declining balance is by multiplying it by two here. If we're saying to do the triple declining balance or something like that, that would be a multiple of three in that case. But we're going to focus on double declining balance and we multiply by two. So this gives us a rate. So let's say that it was a 10 year useful life. Well then it would be one divided by 10 times two. And that that 1/10. Well, that's 0.1 times two. So our our rate would be 20.2. Okay, that would be our double declining balance rate would be 0.2 per year. Okay, so that's just an example there. If if we had a 10 year useful life actually, I'll leave that in there. It's gone now. So All right, so that's how we do our depreciation rate, let's go on to step two and that's pretty easy. Right? We just take our useful life one over the useful life multiply by two. So in step two we multiply what we found in step one, the depreciation rate by the beginning netbook value. So remember this Netbook value. It's going to be decreasing each year. Okay, so the beginning netbook value and the depreciation rate. This is our depreciation expense. Okay, this is the depreciation expense right here. So once we do that, we're gonna calculate the beginning value minus the depreciation expense. This is the new netbook value. And this is important because each year we're gonna be using that new netbook value. That's gonna be the new beginning value that we that we multiply by the depreciation rate. So this will start making sense once we get into an example, but these are the steps that we follow and we're gonna keep repeating this process. Okay? So once we find a depreciation rate and our our beginning value are beginning netbook value, we're just gonna keep multiplying, get the depreciation expense for the next year. Find the new netbook value multiplied by the rate all the way until we get to the final year. Okay, so in the final year this is going to be a plug. This is what we call a plug. Okay, because notice at no point are we using our residual value? We're taking the full value of the asset. And we're gonna start multiplying, we're not taking away the residual value at the beginning. This is an important difference with the double declining balance method. We're not gonna remember with the straight line method, we took out the residual value before we started calculating depreciation expense. In this case we don't do that. What we do is in the final year we're like well how much depreciation do we have to take to get us to our residual value. So we figure that out in the last year and then we're left with are residual value in the last year. Cool. So this sounds a little tricky and this is kind of tricky. This is the trickiest, depreciate depreciation method that you're going to deal with. So why don't we pause here and then we'll do an example where you can follow through how we use these steps in the double declining balance method. Alright, let's do that now.