# finance.depreciation-reducing-balance

Each year's charge is a fixed rate of the asset's opening (written-down) value,
so the charges fall year by year: 25% of 10,000.00 is 2,500.00, then 25% of
7,500.00 is 1,875.00, and so on. Also called declining-balance or
diminishing-value depreciation.

A reducing balance never reaches the residual value by itself, so the **final
year writes off whatever is left**: its charge is the opening value less the
residual value, and the schedule closes on the residual value exactly. For
10,000.00 with a 1,000.00 residual at 25% over four years the charges are
2,500.00, 1,875.00, 1,406.25 and then 3,218.75 to write down to 1,000.00.

The other way round, a high rate can reach the residual value early. A charge
is never allowed to take the value below the residual value: it is capped at the
opening value less the residual, and later years charge nothing. So the closing
value is never below the residual value in any year.

Each charge is rounded half-up to the minor unit (money.apply-rate), once per
year, on that year's opening value; nothing is carried between years except the
closing value itself, which is the balance-sheet number.

The result is the same `DepreciationPeriod` shape as
finance.depreciation-straight-line, so the two schedules print and compare the
same way. Full years only: part-year charges in the years of acquisition and
disposal are a policy choice, left to finance.proration.

This is accounting depreciation. UK capital allowances (writing-down
allowances on a pool, at 18% or 6%) look similar but are a tax computation
with their own rules, and are not this function.