Reducing Balance Method (depreciation)

Definition

The reducing balance method of depreciation assumes that the non-current asset loses value at a rate proportional to its current value

How to find the current carrying value

• If you just need to find the current carrying value then you can use some maths skills

  • Subtract the percentage from 100%

  • Write this as a decimal

  • Raise this to the power of the number of years

  • Multiply this by the original value

Depreciation for Multiple years

• If you need to calculate the depreciation for multiple years, then calculate one year at a time

  • Find the depreciation charge for one year using the carrying value at that start of the year

  • Subtract this amount from the carrying value at the start of the year to find the new carrying value

  • Find the depreciation charge for the next year using the carrying value at the start of that year

  • Continue this process

How it is charged?

Higher in early years and lower in later years