According to the Diminishing Balance Method, depreciation is charged at a fixed percentage on the book value of the asset. As the book value reduces every year, it is also known as the Reducing Balance Method or Written-down Value Method.

Which depreciation method is best?

The Straight-Line Method

This method is also the simplest way to calculate depreciation. It results in fewer errors, is the most consistent method, and transitions well from company-prepared statements to tax returns.

Why reducing balance method is more accurate?

The reducing balance method of depreciation is most useful when an asset has higher utility or productivity at the start of its useful life, as it results in depreciation expenses that reflect the assets' productivity, functionality, and capacity to generate revenue.