Question

One accelerated depreciation method is called fixed-percentage-of-declining-balance. Explain what is meant by the terms “fixed percentage” and “declining balance.” For what purpose is this method most widely used?

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Answer 1

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One accelerated depreciation method is called fixed-percentage-of-declining-balance. Explain what is meant by the terms “fixed percentage” and “declining balance.” For what purpose is this method most widely used?

Fixed Percentage' refers to the constant depreciation rate. It means machine or fixed assets will be charged at the same rate of deprecation thought out their life until their value becomes zero or they were discarded or sold off.

The declining balance represents the value of asset every year after deducting the depreciation amount. That is it means the book value of asset which is declining every year due to depreciation adjustment.

So unlike straight line method though same depreciation rate is used yet base is the declining book value. Thus life of asset under fixed-percentage-of-declining-balance is more than the life of asset under straight line method.

This method is widely used in income tax returns.