Under the declining balance method — called reducing balance in the UK and many other countries — each year's depreciation is a fixed rate multiplied by the asset's opening net book value, not its original cost. Because the book value shrinks, so does each year's charge. It suits assets that lose value or usefulness fastest when new.
Worked example (150% declining balance)
Cost $30,000, salvage $5,000, life 5 years. Straight-line rate = 20%, so 150% declining balance = 30%.
| Year | Opening NBV | Depreciation | Closing NBV |
|---|---|---|---|
| 1 | $30,000.00 | $9,000.00 | $21,000.00 |
| 2 | $21,000.00 | $6,300.00 | $14,700.00 |
| 3 | $14,700.00 | $4,410.00 | $10,290.00 |
| 4 | $10,290.00 | $3,087.00 | $7,203.00 |
| 5 | $7,203.00 | $2,203.00 (to salvage) | $5,000.00 |
Because a percentage of a balance never reaches a set figure on its own, schedules either adjust the final year (as above) or switch to straight-line when that gives a higher charge. The rate that lands exactly on salvage is 1 − (salvage ÷ cost)^(1 ÷ life) — here about 30.1%.
Try the numbers yourself in our free depreciation calculator.
In Asetavo
Reducing balance is one of Asetavo's eight methods, available for book or tax profiles.