The reducing balance method, also known as the declining balance method, is a way to calculate depreciation on an asset over time. This method allows for higher depreciation expenses in the earlier years of an asset’s life, which reflects the fact that many assets lose value more rapidly when they are new.

Key Features:

Depreciation Rate: A fixed percentage is applied to the book value of the asset at the beginning of each period (usually a year).
Book Value: The book value is the cost of the asset minus any accumulated depreciation from previous years.