Reducing balance depreciation refers to a decrease of an item’s book value by a rate (that is a percentage of the previous book value of the good) each time interval.
Nick purchased a new computer for $1,300. He depreciates the computer using the reducing balance method at a rate of 15% per annum. What will the computer’s total depreciation and book value be after three years?
State the information we are provided with in the question.
Substitute these values into the formula to find the book value after three years.
Use the book value to calculate the total depreciation.
The book value of the computer after three years will be $798.36 and the total depreciation will be $501.64.
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