Diminishing balance depreciation, also known as the double-declining balance method, is an accelerated depreciation method used to allocate the cost of a fixed asset over its useful life. According to the enterprise accounting standard No. 4 - Fixed Assets (2006), this method involves calculating the depreciation by applying a fixed percentage, usually twice the straight-line rate, to the book value of the asset at the beginning of each period. The book value decreases each year as depreciation is charged, and the depreciation amount reduces accordingly until it reaches the asset's residual value.

The formula for annual depreciation under the diminishing balance method is: Annual Depreciation Rate = 2 / Estimated Useful Life (years) * 100% Annual Depreciation = (Fixed Asset Cost - Residual Value) * Annual Depreciation Rate

When the remaining book value of the asset is less than or equal to its residual value, the depreciation is switched to the straight-line method to ensure that the asset is fully depreciated by the end of its useful life. This change in method is considered an accounting estimate change and is treated according to the provisions of the relevant accounting standards.