How To Calculate Depreciation Using The Reducing Balance Method In Excel
The reducing balance method assumes that most of the asset’s value drops in the first few years of its useful life. Proponents of this method argue that this is more realistic than the straight line method which assumes that the asset’s value drops in a linear fashion. In our example, we will assume that a company has bought a machine which cost £50,000, has a salvage value of £6,000 and an expected useful life of 10 years. The expected useful life is an estimate of the economic life of the machine while the salvage value is an estimate of the resale value of the machine at the end of its economic life.
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