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Hi all,
can anybody help firstly understand the reducing balance for depreciation and then how to treat it for Capital allowances?
much appreciated
Reducing balance applies an annual rate to amount of Depreciation to be applied, ie if you had a capital sum of 100k, and depreciated using the reducing balance method at a rate of 25% per annum, year one you would depreciate by 25k, year 2 18.75k (25% of 100k-25k), year 3 14.06k (25% of 100k-25k-18.75k) and so on.
For capital allowance purposes, it’s the same principal, except the reducing balance is used as tax relief
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