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Under straight line depreciation, a business recognizes an equal amount of depreciation expense for every year an asset is in service. The reducing balance method -- also known as the declining balance method, double declining balance method or the accelerated method -- front-loads more depreciation into the first years of an asset's life. This works well if the business wants a larger immediate tax deduction, but it reduces depreciation tax breaks for subsequent years.

## Calculating Reducing Balance

Under the reducing balance method, the asset is depreciated at a higher percentage rate than it would be under straight line depreciation. To calculate depreciation under the reducing balance method, follow these steps:

• Calculate the straight line depreciation percentage based on useful life and multiply it by two. For example, if an asset has a useful life of 10 years, it would be depreciated at 10 percent a year under straight line and 20 percent a year under double declining balance.
• Multiply the book value of the asset by the double declining percentage to find depreciation expense. For example, if the asset is worth \$5,000, depreciation would be 20 percent of \$5,000, or \$1,000.
• Subtract accumulated depreciation from the asset's original value to find current book value. In this example, the new current book value is \$5,000 less \$1,000, or \$4,000.
• For the subsequent year, multiply the new book value by the double declining balance rate to find that year's depreciation. In our example, that would be 20 percent of \$4,000, or \$800.
• Repeat until the asset is fully depreciated.