Advanced English Dialogue for Business – Double declining balance

Listen to a Business English Dialogue About Double declining balance

Elizabeth: Hi Andrew, have you heard of the double declining balance method in accounting?

Andrew: Yes, I have. It’s a depreciation method where an asset’s value is depreciated at a faster rate in the early years and slows down over time.

Elizabeth: That’s correct. The double declining balance method results in higher depreciation expenses in the early years, reflecting the asset’s higher usage and decreasing value over time.

Andrew: Are there any advantages to using the double declining balance method?

Elizabeth: Yes, there can be. It allows businesses to allocate more depreciation expense to the early years of an asset’s life, which can help in generating higher tax deductions and reducing taxable income.

Andrew: I see. So, the double declining balance method can help businesses manage their tax liabilities more effectively?

Elizabeth: Exactly. By accelerating depreciation expenses, businesses can reduce their taxable income in the short term and free up cash flow for other purposes.

Andrew: Are there any limitations or drawbacks to using the double declining balance method?

Elizabeth: Yes, there are. Since this method results in higher depreciation expenses early on, it can potentially overstate the depreciation costs and underestimate the asset’s residual value.

Andrew: That’s something to consider. It’s essential for businesses to carefully assess their depreciation methods to ensure they accurately reflect the asset’s value and usage over time.

Elizabeth: Absolutely. Choosing the right depreciation method is crucial for maintaining accurate financial records and making informed business decisions.

Andrew: Thanks for the informative discussion, Elizabeth. It’s helpful to understand the nuances of different depreciation methods in accounting.

Elizabeth: You’re welcome, Andrew. Depreciation plays a significant role in financial reporting, so it’s essential to have a clear understanding of how different methods work.