Question

There are two main methods of calculating​ depreciation: straight line and reducing balance. Which one of the definitions describes the reducing balance​ method?

A. An amount calculated on the basis of the anticipated economic life based upon the number of hours for which the asset is expected to be used

B. An amount calculated using a fraction is computed by dividing the remaining useful life of the asset on a particular date by the sum of the​ year's digits

C. An amount calculated by deducing the percentage of the carrying amount each year over the life of the asset until the residual value is reached

D. An amount calculated by deducting the same amount each year over the life of the asset until the residual value is reached

Answer 1

C. An amount calculated by deducing the percentage of the carrying amount each year over the life of the asset until the residual value is reached. Under reducing balance method the depreciation is calculated each year at a certain percentage on the reduced balance of the asset until the residual value is reached or zero where there is no redidual value. Reduced value means after deduction of depreciation.

An amount calculated on the basis of the anticipated economic life based upon the number of hours for which the asset is expected to be used is called Hourly Rate of depreciation.

An amount calculated using a fraction is computed by dividing the remaining useful life of the asset on a particular date by the sum of the​ year's digits is called Sum of Digits Method.

An amount calculated by deducting the same amount each year over the life of the asset until the residual value is reached is called straight line Method.