Reducing-balance depreciation

Reducing-balance depreciation applies a fixed percentage rate to an asset's declining carrying value each year, producing larger depreciation charges early in the asset's life and progressively smaller ones later; also called the.

ByHoang TruongUpdated June 30, 2026

FrameworkDepreciation

See it move

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A van bought for €24,000 is depreciated at 25% reducing balance. Year one's charge is €6,000, leaving a carrying value of €18,000. Year two's charge, 25% of that lower base, is €4,500, leaving €13,500. Year three's charge is €3,375, leaving €10,125. The rate stays fixed, but each charge falls because the base it applies to keeps shrinking.

Where it fits

SubjectFinancial AccountingAdvancedTopicAsset Measurement & ValuationAdvanced

The formula

LaTeX

Dep_t = CV_{t-1} \times r_{dep}

Variables

$C V_{t - 1}$: carrying value at the start of the year (cost minus accumulated depreciation at that point) (€)
$r_{d} e p$: reducing-balance depreciation rate (fixed percentage set by policy or tax rules) (decimal)

The carrying value never mathematically reaches zero under this method alone; a switch to straight-line in the final years is common when the straight-line charge exceeds the reducing-balance charge.