3. Double Declining Balance Method

This method is similar to reducing balance method explained above except that the rate of depreciation is double the straight line rate. Allowance for scrap value of the asset should not be allowed.

Advantages:

– The total cost of the asset is evenly spread over the economic life of the asset and such annual charge includes cost of depreciation and repairs.

– Initially, the depreciation charged is more compared to subsequent years. This is advantageous since  there is considerable tax-saving, demand for funds in the initial year is more and money at present is more beneficial than money in future.