What method of depreciation reduces an asset's book value by a fixed percentage rate?

The method that reduces an asset's book value by a fixed percentage rate is known as the declining balance method. This approach applies a specific percentage to the asset's remaining book value, which decreases over time as the asset is depreciated. The result is that the depreciation expense is higher in the earlier years of the asset's life and decreases in later years, reflecting the reality that most assets lose value more quickly near the beginning of their useful life.

In contrast, straight-line depreciation distributes the depreciation evenly over the life of the asset, resulting in fixed annual deductions, regardless of the asset's remaining value. Accelerated depreciation methods, while they provide higher expenses in early years compared to straight-line, do not specifically rely on a fixed percentage applied to the remaining book value as the declining balance method does. "Balance depreciation" is not a standard term used in accounting for asset depreciation and thus does not pertain to the methods typically discussed.

The declining balance method effectively illustrates how assets devalue over time based on a consistent rate, which remains applicable until the asset's book value nears zero or the predetermined salvage value is reached.