Introduction
In April 2014, K Travels Ltd. decided to introduce the diminishing balance method for depreciating their vehicles. This method allows for a higher depreciation expense in the early years of an asset's life and gradually decreases the depreciation expense over time. This approach reflects the fact that assets tend to lose their value more rapidly in the initial years of use.

Diminishing Balance Method
Under the diminishing balance method, depreciation is calculated as a fixed percentage of the asset's carrying value. The carrying value is the original cost of the asset minus accumulated depreciation. The percentage used for depreciation calculation is typically higher than the straight-line method.

Benefits of Diminishing Balance Method
1. Reflects asset's actual value: The diminishing balance method better reflects the actual value of the asset over time. Assets tend to lose value more rapidly in the early years, and this method accounts for that.

2. Higher depreciation in early years: This method allows for higher depreciation expenses in the early years, which can help offset higher maintenance and repair costs during that period.

3. Lower depreciation in later years: As the asset ages and its value decreases, the depreciation expense also decreases. This can help reduce the impact on the company's profitability in the later years.

4. Better matching of expenses and revenues: The diminishing balance method helps in better matching of expenses with the revenues generated by the asset. Since the depreciation expense is higher in the early years, it aligns with the higher revenue-generating capacity of the asset during that period.

Calculation of Depreciation
To calculate the depreciation expense under the diminishing balance method, the following steps are followed:

1. Determine the useful life of the asset: This is the estimated number of years for which the asset will be used before it becomes obsolete or is scrapped.

2. Determine the depreciation rate: The depreciation rate is calculated by dividing 100% by the useful life of the asset. For example, if the useful life is 5 years, the depreciation rate would be 20% (100% / 5).

3. Calculate the annual depreciation expense: The annual depreciation expense is calculated by multiplying the depreciation rate by the carrying value of the asset at the beginning of the year.

4. Adjust the carrying value: After each year, the carrying value of the asset is adjusted by subtracting the depreciation expense for that year. The adjusted carrying value is then used to calculate the depreciation expense for the next year.

Conclusion
The diminishing balance method is a useful depreciation method that allows for a higher depreciation expense in the early years of an asset's life. It better reflects the actual value of the asset over time and helps in better matching of expenses with revenues. By introducing this method, K Travels Ltd. can more accurately account for the depreciation of their vehicles and better manage their financial statements.