Advantages & Disadvantages of Reducing Balance Method

Advantages Of Reducing Balance Method Of Depreciation (also known as diminishing balance method, written down value method or reducing installment method):
1. This method is simple to use.
2. This depreciation method is acceptable for income tax purposes.
3. Under reducing balance, the greater amount of depreciation is provided in initial years and this is matched against the higher amount of revenue generated by the use of new asset in initial years.

Disadvantages Of Reducing Balance Method Of Depreciation:
1. This method charges heavy amount of depreciation in earlier years, and it cannot reduce the book value of a fixed asset to zero if it is desired.
2. It requires high rate of depreciation on fixed assets otherwise it will take a long time to write the asset down to its residual value.