Financial Glossary: Declining Balance Method


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Declining Balance Method

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Declining Balance Method

Declining Balance Method

A common Depreciation-calculation system that involves applying the Depreciation rate against the non-depreciated balance.

Depreciation methods that provide for a higher Depreciation charge in the first year of an asset's life and gradually decreasing charges in subsequent years are called accelerated Depreciation methods. This may be a more realistic reflection of an asset's actual expected benefit from the use of the asset: many assets are most useful when they are new. One popular accelerated method is the declining-balance method. Instead of Spreading the cost of the asset evenly over its life, this system expenses the asset at a constant rate, which results in declining Depreciation charges each successive period.

For example, if an asset that costs $1,000 is depreciated at 25% each year, the Deduction is $250.00 in the first year and $187.50 in the second year, and so forth.

Posted by IQPC Ltd, Institute for International Research

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