How is the amount of depreciation calculated using the Declining Balance method?

The Declining Balance method of depreciation is a type of accelerated depreciation, meaning that it allocates a larger portion of an asset's cost to the earlier years of its useful life. The calculation involves determining the remaining book value of the asset, which is its original cost minus any accumulated depreciation taken in previous periods.

Once the book value is known, the depreciation expense for the period is calculated by multiplying this remaining book value by a fixed rate, which represents the percentage of depreciation that will be applied. This method results in a decreasing depreciation expense over time, as the book value diminishes. The fixed rate used can vary based on the asset's expected lifespan and the policy set by the business, but it remains constant throughout the asset's life.

This differs fundamentally from other methods listed, such as evenly distributing the cost over the useful life or calculating based on salvage value or production output, which are distinct depreciation calculations that do not apply the concept of a fixed rate to the declining book value.