Thus, the method is based on the assumption that more amount of depreciation should be charged in early years of the asset. Accordingly, higher amount of depreciation is charged during the early years of the asset as compared to the later stages. Now, as the book value of the asset reduces every year so does the amount of depreciation. This asset is the one reflected in the books of accounts at the beginning of an accounting period.So, the book value of the asset is written down so as to to reduce it to its residual value. Thus, it means that depreciation rate is charged on the reducing balance of the asset. This net balance is nothing but the value of asset that remains after deducting accumulated depreciation. A fixed percentage of depreciation is charged in each accounting period to the net balance of the fixed asset under this method. This method is also known as reducing balance method, written down value method or declining balance method.
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