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Hands-On Financial Modeling with Microsoft Excel 2019 by Shmuel Oluwa

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The reducing balance method

Another method of calculating depreciation is called the reducing balance method. This method is based on the assumption that an asset loses value more quickly in earlier years. It is therefore constructed to allocate more depreciation in the early years and less in the later years of an asset's useful life. In the first year of depreciation, the depreciation rate is applied to the cost of the asset. In subsequent years, the depreciation rate is applied to the net book value brought forward from the previous year.

Since the net book value of the asset reduces from year to year, the depreciation will also reduce because the depreciation rate is being applied to a progressively lower figure. The following screenshot ...

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