Reducing Balance Method in Depreciation

Reducing Balance Method in Depreciation

A constant annual percentage rate of depreciation is determined, which is written-off the reducing balance of the capital value, the rate being so fixed that at the end of the estimated life of the asset only the residual scrap value remains. In favor of this method it is argued that a heavier depreciation charge is borne in the earlier years, when repairs are lighter and that the assumed increasing repair cost is counter-balanced, in later years, by the reduced annual charge of depreciation. The assumption is frequently incorrect.

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