Reducing balance depreciation

A method used when the depreciation of an asset is higher in the earlier years of its life, and when that depreciation amount begins to reduce as the life of the asset progresses.

Example: if a company purchases a computer worth £1,000 (with a projected lifetime of 4 years), and you want to depreciate it at a 20% reducing balance you would simply multiply £1,000 by 20% which gives you a value of £200. For the next year, you'd start the depreciation calculation from the original cost minus the depreciation cost.