What is a characteristics of the reducing balance method?

The reducing balance method of depreciation is characterized by reducing the asset's value by the same percentage each year. This means that the depreciation expense decreases over time since it is based on the remaining value of the asset, which gets smaller as years go by. For instance, if an asset has a value of $10,000 and is depreciated at a rate of 20%, the first year's depreciation will be $2,000, leaving a book value of $8,000 for the next year, where the depreciation would then be calculated as 20% of $8,000, which is $1,600. This pattern continues, leading to decreasing depreciation values in the subsequent years.

This method reflects the fact that assets often have a decreasing utility over their useful life, thus aligning the cost of the asset with the revenue it generates more closely in the earlier years of use when it is typically more productive.