[FAQ] How the system calculates Reducing Balance - Monthly Basis Depreciation on Fixed Assets

When using Reducing Balance -Monthly Method depreciation is charged at a fixed percentage on the book value of the asset. The book value reduces every month by the previous months depreciation amount and each month the book value is recalculated reducing the depreciation.

When a fixed asset uses the Reducing Balance -Monthly depreciation method, a depreciation percentage is specified. This percentage, along with the acquisition cost and residual value, is used to determine the total monthly depreciation. 

Example: Take a $10,000 asset with a 20% diminishing value depreciation rate. 

The formula for reducing balance monthly depreciation is:

Monthly Depreciation = Book value at end of previous month times Depreciation %, divided by number of days in the year, times the number of days in that month.

Applying the values: 

1st Month  Depreciation = 10000 × 0.20 = 2000 , 2000 ÷ 366 x31 =169.40

2nd Month Depreciation = (10,000 − 169.40) × 0.20 = 9830.60, 9830.60 ÷ 366 x 29 =155.79

3rd Month Depreciation = (10000 − 325.19) × 0.20 = 9674.81, 9674.81 ÷ 366 x 31 =163.89

and so on until fully depreciated.

Example above is 2024 a leap year with 366 days.

non-leap year (365 days):