REDUCING BALANCE DEPRECIATION
Reducing balance depreciation is calculated on the reducing balance (that is, the current value of the
asset at any given time).
Reducing balance depreciation is the opposite of Compound interest.
As time goes on, the value of the asset decreases, and therefore the amount by which the asset is
depreciated each year also decreases.
The graph of Book Value versus time for Reducing Balance Depreciation is an exponential decay
curve:
0
200
400
600
800
1000
1200
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Book Value
Years
(1, 900)
Q: What was the original price of the asset?
Q: After 1 year, its value has decreased to $900. What is the annual depreciation rate?
Q: Calculate the value of the asset after:
i. 2 years
ii. 3 years
iii. 4 years
