Main benefits or advantages of diminishing balance or reducing balance method of provision of depreciation can be expressed as follows:
1. Simplicity
Diminishing balance method of providing depreciation is very simple technique. It does not require special knowledge to calculate depreciation. It is so simple that anyone can understand easily.
2. Scientific
Diminishing balance method is systematic and scientific method of providing depreciation. Depreciation amount gradually decreases with the potential and efficiency of the asset.
3. Tax Benefit
Reducing balance or diminishing balance method is acceptable by tax authorities. So, it provides tax benefit to the company.
4. Suitable For Large Scale Business
This method of depreciation is suitable for large scaled business large and complex technology with large machines and equipment
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5. Reduce The Impact Of Obsolescence
In diminishing balance method, higher amount of depreciation is deducted in initial years. So, it helps to reduce the impact of obsolescence of assets.
6. Suitable For Valuable Assets
This method is very suitable and applicable for valuable assets like land and building, machines and equipment having long life.
