Question

Reducing balance depreciation:

Select one:

a. Is an accelerated depreciation method

b. Depends on the net book value of the asset at the beginning of the year

c. Is appropriate for assets that loose most of their value at the beginning of their life

d. All of the above are correct

Answer 1

Answer

d. All of the above are correct

Explanation:

• Example of Reducing balance depreciation method

Depreciation ate is assumed to be 20%.

Year	Opening Book value	Depreciation (20%)	Closing Book value
1	$                4,000,000	$      800,000	$             3,200,000
2	$                3,200,000	$      640,000	$             2,560,000
3	$                2,560,000	$      512,000	$             2,048,000
4	$                2,048,000	$      409,600	$             1,638,400
5	$                1,638,400	$      327,680	$             1,310,720
6	$                1,310,720	$      262,144	$             1,048,576
7	$                1,048,576	$      209,715	$                 838,861
8	$                   838,861	$      167,772	$                 671,089
9	$                   671,089	$      134,218	$                 536,871
10	$                   536,871	$      107,374	$                 429,497

• In Reducing balance depreciation method, early years get more depreciation as compared to the later years. So, it is an accelerated depreciation method.
• Also, the depreciation of each year is calculated on the opening balance of Fixed assets at the beginning of the year.
• this method is appropriate for those assets which lose more value in the early years.
• So, all of the options are true.

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