What does the declining balance formula primarily calculate?

The declining balance formula is used to calculate the annual depreciation expense of an asset over time. This method allows businesses to allocate a higher depreciation amount in the earlier years of the asset’s life and lower amounts in later years. The formula typically applies a fixed percentage rate to the book value of the asset at the beginning of each year, reducing its value as depreciation is accounted for.

By focusing on annual depreciation, the formula helps companies assess how much of an asset’s value is being consumed each year. This approach is particularly useful for assets that tend to lose their value more rapidly in the earlier years of their useful life, reflecting a more accurate picture of an asset's expense in financial statements. Thus, the correct answer directly connects to what the declining balance formula is designed to compute.