reducing balance method expalin want all steps
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Answer:
Asset cost: the original value of the asset plus any additional costs required to get the asset ready for its intended use.
Residual value: also known as scrap or salvage value, this is the value of the asset once it reaches the end of its useful life.
Depreciation factor: this correlates to the percentage the asset will depreciate by each year. For example, 2 is 200%, 0.5 is 50%.
Using this information, the reducing balance method calculates depreciation in two steps:
Step 1: Calculate the depreciation charge using the following formula:
Depreciation charge per year = (net book value – residual value) x depreciation factor
Step 2: Subtract the depreciation charge from the current book value to calculate the remaining book value.
These steps should be repeated annually throughout the asset's useful life. In the final year of the asset's useful life, you should subtract the residual value from the current book value and record the amount as an expense.
Bear in mind that this is just one way of calculating residual value. There are a few other calculations and formulas, but this appraoch is one of the most simple and is therefore suitable for most small businesses and freelancers.