1. The Straight-Line Depreciation Method
 
This method allocates an equal amount of depreciation to each year of the asset’s useful life. It is best suited for assets that provide equal economic benefits every year, such as office buildings or furniture.
Annual Depreciation Expense=Historical Cost−Residual ValueUseful Economic Life (Years)

 
2. The Reducing Balance (Diminishing Value) Method
This method applies a fixed percentage rate to the Net Book Value of the asset at the start of each period. It results in high depreciation expenses in the early years and decreasing expenses in later years. This aligns well with assets that lose value rapidly or require high maintenance costs over time, like vehicles or technology.
Annual Depreciation Expense=Net Book Value (NBV)×Depreciation Rate (%
 
3. Comparative Ledger Recording Architecture
Depreciation entries must never be credited directly to the asset account. Instead, they are accumulated in a separate tracking account to preserve the original cost details:
Date         Account Titles & Explanation          Ref       Debit ($)    Credit ($)
-------------------------------------------------------------------------------------
2026-12-31   Depreciation Expense                  6810          4,500
                Accumulated Depreciation - Vehicles1555                     4,500
             (To record annual depreciation charge using 
              the straight-line method)

 
PreviousNext