SS1 Third Term Financial Accounting Lesson Note – Diminishing or Reducing Balance Method of Depreciation

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WEEK 3                                                        

TOPIC: DIMINISHING OR REDUCING BALANCE METHOD OF DEPRECIATION

CONTENT:

• Definition of diminishing balance method
• Accounting entries
• Disposal of assets
• Amortization
• Depletion

Sub-Topic: 1: METHODS OF DEPRECIATION

In this method, a fixed percentage is written off the diminishing balance of the asset yearly. The total depreciation is spread over the anticipated useful life of the asset by annual installments of diminishing amount. This method of depreciation is advantageous because depreciation is more scientifically provided for.

Depreciation rate is computed using this formula=

Where N=the number of years (useful life of the asset)

Example: A motor van cost N10, 000 in 2005.It has an expected life span of four years and the estimated residual value of N256.What is the depreciation rate?

Solution:

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