What is one of the three main methods of depreciation?

Reducing balance is one of the three main methods of depreciation primarily used to allocate the cost of an asset over its useful life. This method operates on the premise that assets lose value more rapidly in their earlier years and gradually decrease in value over time. In calculating depreciation using the reducing balance method, a fixed percentage is applied to the book value of the asset at the beginning of each accounting period. As a result, the depreciation expense decreases yearly, which aligns with the actual usage of many assets.

This method contrasts with sum of the years' digits, which also exists as a valid depreciation method but is calculated differently, considering the asset's total useful life in a more accelerated manner than straight-line methods. Current value and compound interest, while relevant in financial discussions, do not pertain to standard depreciation calculations in accounting practices. Current value pertains to the market valuation of assets, and compound interest refers to the interest on an investment that earns interest on both the principal and accumulated interest, neither of which are methods for depreciating physical assets.