Listen to a Business English Dialogue About Double declining balance depreciation method
Lillian: Hey Justin, have you heard of the double declining balance depreciation method?
Justin: Hi Lillian, yes, it’s a common method used to calculate depreciation for fixed assets. It allows for higher depreciation expenses in the earlier years of an asset’s life.
Lillian: Right, with this method, the asset depreciates faster in the beginning and slows down over time, reflecting its decreasing value.
Justin: Exactly, and it’s often used for assets that lose their value more quickly, like technology or machinery.
Lillian: Yes, because it front-loads depreciation expenses, it can help companies better match expenses with revenue in their financial statements.
Justin: That’s correct, and it’s important for companies to choose the depreciation method that best aligns with their business needs and financial goals.
Lillian: Agreed. The double declining balance method can be advantageous for companies looking to reflect the true wear and tear of their assets over time.
Justin: Definitely, but it’s also essential to consider the impact of depreciation on taxes and financial reporting.
Lillian: Right, while this method can result in higher depreciation expenses early on, it may lead to lower taxes in the short term.
Justin: True, but companies should also be mindful of the long-term implications and how depreciation affects their overall financial health.
Lillian: Absolutely. It’s about striking the right balance between maximizing tax benefits and accurately reflecting the value of assets on the balance sheet.
Justin: Exactly. The double declining balance method provides flexibility for companies to manage their depreciation expenses effectively.