For specific assets, the newer they are, the faster they depreciate in value. As these assets age, their depreciation rates slow over time. In these situations, the declining balance method tends to be more accurate than the straight-line method at reflecting book value each year.
Depreciation per year = Book value × Depreciation rate
Under this system, a fixed percentage of the diminishing value of the asset is written off each year so as to reduce the asset to its residual value at the end of its life. Repairs and small renewals are charged to revenue. This method is commonly used for plant, fixtures, etc. Under this method, the annual charge for depreciation decreases from year to year, so that the earlier years suffer to the benefit of the later years. Also, under this method, the value of the asset can never be wholly extinguished, which happens in the earlier explained Straight Line Method. However, it is very simple to operate. This method is based on the assumption that the cost of repairs will increase as the asset gets old. Therefore, depreciation in earlier years should be high when the repair cost is expected to be lower. Depreciation in later years should be lower when the repair cost is expected to be high. Therefore, this method will result in almost equal burden in all the years of use of the asset as depreciation will reduce with increase in repair costs with every passing year.
The following formula determines the rate of depreciation under this method:
1 – nth root of [(Residual Value/Cost of the asset) × 100]
where, n = useful life
Depreciation using Straight Line Method Visit Here