Reducing Balance Method

This is of the two most common methods of calculating depreciation of a fixed asset. This method is typically used where greater economic benefit is gained in the earlier years of an asset, for example, a machine is prone to fewer breakdowns when new compared to a well-used machine which might be several years old; a newer machine will typically be more efficient or effective than an older machine and therefore more productive and economically valuable. “Where the pattern of consumption of an asset's economic benefits is uncertain, a straight-line method of depreciation is usually adopted.” (Financial Reporting Standard FRS 15 Tangible Fixed Assets, paragraph 81)