The formula for reducing balance method of depreciation is r = 1 - (S/C)1/n. The r stands for rate of depreciation, n stands for estimated useful life of asset, S stands for residual value after the expiry of useful life, and C stands for the original cost of asset.
The formula for a straight line depreciation method is the Cost minus the Salvage Value over the Life in Number of Periods which will equal Depreciation.
declining - balance
in what circumstances is the reducing balance method more appropriate than the straight line method?
depreciation is classed as a fixed cost when using only the straight line method. reducing balancing method is classed as a variable cost.
Following are different methods of depreciation: 1 - Straight line method 2 - Diminishing balance method 3 - Double declining method 4 - Sum of years method 5 - MACRS
Reducing balance method
The straight line method calculates the depreciation of an asset for a specific period of time, while reducing balance method calculates the depreciation for a provisional rate of an asset.
Main advantage of using reducing balance method is that it uses the high value at start of life of asset while low value in later years when asset is not working at 100% capacity.
Under straight line depreciation, fixed amount of depreciation is charged to every year while in declining balance method depreciation percentage remains same but depreciation is charged on remaining balance of asset due to which the amount of depreciation is different in every year.
The formula for a straight line depreciation method is the Cost minus the Salvage Value over the Life in Number of Periods which will equal Depreciation.
declining - balance
Declining-Balance
in what circumstances is the reducing balance method more appropriate than the straight line method?
Thre formulas for depreciation are a fixed percentage, a straight line, and a declining balance method.
different deprecition method impact differently on the company's profit. The straightline method of depreciation when used impact differently on the profit and loss than the reducing balance method. How do the two methods differ. different deprecition method impact differently on the company's profit. The straightline method of depreciation when used impact differently on the profit and loss than the reducing balance method. How do the two methods differ.
Sinking fund method for depreciation The straight line method has equal annual depreciation for every year. There are other methods which has more depreciation allocated to the earlier years like Written-Down Value (WDV) method in which depreciation is charged at fixed rate (%) on the reducing balance (i.e. cost less depreciation) every year. The sinking fund method allocates more depreciation to the later years. The depreciation for the first year equals the annual deposit needed for a sinking fund to accumulate at the given rate to an amount that equals the depreciation base. For each consecutive year, the annual depreciation equals the annual sinking fund deposit plus the interest earned on the fund up to that year.
depreciation is classed as a fixed cost when using only the straight line method. reducing balancing method is classed as a variable cost.