What is the difference between reducing balance method depreciation and straight line depreciation?

The reducing balance method takes off a percentage of the value of a Non Current Asset each year. For example a an asset that is valued at £50,000 and depreciated at a rate of 10% per year will be depreciated by £5,000 in year one leaving a net book value of £45,000 in the balance sheet. In the second year this calculation is done again, but with the last net book value (The calculation would be £45,000*0.1= £4,500). This process would carry on throughout the useful life of the asset or until the asset is sold. This method is most suitable for assets where the proprietor/company does not know how long the useful life is of the asset or how long they plan to keep the asset.

The straight line method of depreciation is simpler. It aims to average out the cost of depreciation to a company over a number of years, to reduce the level of depreciation cost a company will suffer in earlier years. To calculate the straight line method, a company deduct their expected sales price of an asset in the future from the initial purchase price. This will then be divided by the useful life of the asset (The formula is: (Cost - Sale proceeds) / Useful life). This method is useful when the company knows how long it will keep an asset and the money it will receive when it is disposed of. It can also be useful when a company does not intend to sell the asset (i.e. there will be no sale proceeds). Overall companies may wish to choose different methods for different assets to try to most accurately calculate a true level of depreciation per year. Whichever method it chooses it would be sensible to keep to that rule in order to keep to the rule of consistency.