Depreciation Method for Increasing Repair and Maintenance Cost

Introduction:
Depreciation is a process of allocating the cost of an asset over its useful life. There are several methods of depreciation, but the choice of method depends on various factors. One of the factors is the repair and maintenance cost of the asset.

Depreciation Method:
Among the various methods of depreciation, the reducing balance method is effective if the repairs and maintenance cost of an asset increases as it grows old. This method is also known as the diminishing balance method or the accelerated depreciation method.

Working:
In the reducing balance method, the depreciation is charged at a fixed percentage of the book value of the asset. As the book value decreases every year, the amount of depreciation also decreases. This method results in higher depreciation in the early years and lower depreciation in the later years.

Advantages:
The reducing balance method is beneficial for those assets that require more repair and maintenance as they grow old because it allows for higher depreciation in the early years. This higher depreciation helps to offset the higher repair and maintenance costs.

Limitations:
The reducing balance method has a limitation that it may not be appropriate for all types of assets. For example, it may not be suitable for assets that have a long useful life and are expected to have a constant repair and maintenance cost throughout their life.

Conclusion:
In conclusion, the reducing balance method is an effective method of depreciation for assets that have an increasing repair and maintenance cost as they grow old. However, the choice of method should be based on various factors, including the nature of the asset and the expected repair and maintenance cost.

Because in reducing balance method depreciation goes on decreasing and with time machine needs more repairs so to match income with expenditure reducing balance method is more suitable as repairs increase and depreciation decrease