Methods Of Depreciation

There are two methods to work out the decline in value of a depreciating asset: Diminishing Value and the Prime Cost methods.  Once you have chosen a method for depreciation you cannot change to the other method.  The first year claim is based on the number of days remaining in the income year that the tax payer purchased the asset.

 Diminishing Value (DV) Method

The diminishing value method assumes that the decline in value each year is a constant proportion of the remaining value and produces a progressively smaller decline over time.

Prime Cost (PC) Method

The prime cost method assumes that the value of a depreciating asset decreases uniformly over its effective life.