Depreciation Policy for Fixed Assets

[alenaghose]

Good day, I’d like advice: For a new piece of machinery, should we use straight-line depreciation or the reducing balance method? What factors (tax, useful life, maintenance) should influence this decision

 

[amara]

Method	How It Works	Typical Effect
Straight-Line (SL)	Depreciates by an equal amount each year. Formula: (Cost − Residual Value) ÷ Useful Life	Smooth, even expense over time
Reducing Balance (RB)	Applies a constant percentage rate to the asset’s book value each year (so depreciation expense is higher early on and lower later)	Front-loads expenses — higher depreciation at first

 

[Samuel]

A depreciation policy for fixed assets outlines how an organization allocates the cost of tangible assets over their useful life. It defines methods (straight-line, declining balance, etc.), rates, and asset categories to ensure accurate financial reporting, compliance with accounting standards, and proper reflection of asset value reduction over time.