Reducing Balance Method of Depreciation

Depreciation rate per cent is calculated on cost of assets each year. Over time the accumulated depreciation balance increases as you add more depreciation.

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The reducing balance method of depreciation reflects this more accurately than other depreciation methods.

. In the income statement debit the Depreciation Expense account by 4000 every year. In the balance sheet credit the Accumulated Depreciation account by the same 4000. The rate and amount of depreciation remain the same each year.

On the other hand straight-line depreciation results in equal depreciation expenses and therefore cannot account for higher levels of productivity and functionality at the beginning of an assets useful life. The rate remains the same but the amount of depreciation diminishes gradually. Eventually this figure will equal the original cost of the asset.

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