Both methods spread the same cost. They just disagree about when.
Straight-line depreciation spreads cost minus residual value evenly over the useful life, so each year's charge is the same. Reducing balance applies a fixed rate to the opening net book value, so the charge is highest in the early years and falls over time. In Excel, use SLN for straight-line, DB for fixed-declining balance and DDB for double-declining balance.
An asset costs 10,000, has a residual value of 1,000 and a useful life of five years.
Annual charge = (cost − residual value) ÷ useful life = (10,000 − 1,000) ÷ 5 = 1,800 a year.
In Excel: =SLN(10000,1000,5) returns 1,800.
Use it when the asset is used up fairly evenly over its life, such as office fit-outs, furniture and many buildings. It is simple, predictable and the most common method.
Each year's charge = opening net book value × rate. At 30%:
| Year | Opening NBV | Charge (30%) | Closing NBV |
|---|---|---|---|
| 1 | 10,000.00 | 3,000.00 | 7,000.00 |
| 2 | 7,000.00 | 2,100.00 | 4,900.00 |
| 3 | 4,900.00 | 1,470.00 | 3,430.00 |
| 4 | 3,430.00 | 1,029.00 | 2,401.00 |
| 5 | 2,401.00 | 720.30 | 1,680.70 |
The charge falls every year. Use it when an asset gives more benefit, or loses more value, early on, such as vehicles and computer equipment.
=DB(cost, salvage, life, period, [month]) calculates fixed-declining balance. It works out the rate itself so the asset reaches roughly its residual value at the end of its life, using rate = 1 − (salvage ÷ cost)^(1 ÷ life), rounded to three decimal places.
For our asset, (1,000 ÷ 10,000)^(1 ÷ 5) is about 0.631, so the rate is 0.369, and =DB(10000,1000,5,1) returns 3,690 for year 1. The optional month argument handles a first year shorter than twelve months.
=DDB(cost, salvage, life, period, [factor]) calculates double-declining balance: twice the straight-line rate, applied to the opening net book value. For our asset, the rate is 2 ÷ 5 = 40%:
DDB doesn't switch to straight-line in later years. If you want that switch, Excel's VDB function can do it.
Choose the method that best reflects how the asset is used up, apply it consistently to each class of asset, and disclose it in your accounting policies. Changing method is a change in estimate and should be justified and documented.
The register that holds these figures is covered in what a fixed asset register must include.
Terminology: UK teams say "reducing balance"; US teams say "declining balance". The arithmetic is the same.
Tax: book depreciation differs from tax relief: capital allowances in the UK and, generally, MACRS in the US. Keep them in separate schedules.
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The Fixed Assets & Depreciation System calculates straight-line and reducing-balance depreciation, stops depreciation at the disposal date with the profit or loss calculated, and ties a full movement schedule back to the register. Excel, no macros, one-time price.
Straight-line, because it is simple and suits assets that are used up evenly. Reducing balance is common for vehicles and IT equipment.
DB calculates its own rate from cost, residual value and life, rounded to three decimal places. Your 30% is a rate you chose. Use whichever your policy specifies.
No. Depreciation stops when net book value reaches the residual value. Excel's DDB function applies this limit automatically.
Last updated 18 October 2026. General guidance for finance teams; check it against your own policies, systems and local rules.