Page 104 - F3 -FA Integrated Workbook STUDENT 2018-19

Chapter 7

3.4 Reducing balance method

 Some assets give a greater or more efficient service in their earlier years, and
therefore depreciate more, than they do in later years. For this reason, it is
considered reasonable to charge a higher amount of depreciation in the earlier
years.

 This is a common method of depreciation for vehicles where it is expected that
they will provide less efficient service to the entity as they age due to the
increased need to service/repair them as their mileage increases.

 The amount to be charged to each accounting period is calculated as follows:

Depreciation per annum = X% × carrying amount

Note: Carrying amount = original cost of the non-current asset less
accumulated depreciation for the asset to date.

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