Reducing balance depreciation should be used when the asset is expected to
produce more benefits in the early years of its life, than in its later years.
Instead of resulting in a constant depreciation charge each year, a reducing
balance depreciation charge is greater in the first year and gets smaller and
smaller each year until the residual value is reached. Reducing balance
depreciation is always expressed as a percen
tage rate.
If x is the percentage
rate, the annual depreciation charge is calculated as:
Annual depreciation charge in year n = x x NBV of asset at start of year n
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