Reducing balance method is also termed as diminishing balance method or written down value method or declining value method or book value method. Under the reducing balance method, depreciation is charged at fixed rate on the reducing balance of asset derived after deducting depreciation of every year out of the cost of the fixed assets. The balance in the asset account will go on decreasing but will never become zero. The remaining balance in the asset account is taken as scrap value. The following points should be considered while calculating the amount of depreciation on asset.
* The annual amount of depreciation will not remain fixed or equal. It decreases gradually since the current value of the asset deceased every year.
* The amount of depreciation is calculated by using the given rate of depreciation on the diminishing value(written down value) of an asset.
Written down value = Cost - depreciation
* If the rate of depreciation is not given in the question, the rate is determined by using the following formula
Rate of depreciation = 1-(s/c) 1/n
n= Estimated useful life of the assethttp://accountlearning.blogspot.com/2010/07/reducing-balance-method-of-depreciation.html
s = Scrap value
c= Cost of assets