Which of the following methods of depreciation involves applying a constant percentage of the
asset's current value each year?
1. Straight-line method
2. Reducing balance method
3. Sum of the years digits method
Straight-line method
A fixed (constant) amount of depreciation is charged every year. It is calculated on the original
cost of the asset (minus residual value) and does not use a percentage of the current book
value.
Reducing balance method (also called declining-balance or written-down-value method)
A constant percentage is applied each year to the current book value (i.e., the reducing
balance) of the asset. This is exactly the method described in the question.
Sum-of-the-years’-digits method
Depreciation is calculated by applying a decreasing fraction (based on the sum of the years’
digits) to the depreciable amount. It does not use a constant percentage of the current value.
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