diminishing-balance method

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A method of computing the depreciation of a fixed asset in an accounting period, in which the percentage to be charged against income is based on the depreciated value at the beginning of the period (see net book value). This has the effect of reducing the annual depreciation charge against profits year by year. The annual percentage to be applied to the annual depreciated value is determined by the formula:rate of depreciation = 1 – (S/C)1/N,

rate of depreciation = 1 – (S/C)1/N,

where N is the estimated life in years, S is the estimated scrap value at the end of its useful life, and C is the original cost.

Subjects: Accounting.

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