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Question
Under ____________ method depreciation is calculated on book value.
Under ____________ method depreciation is calculated on book value.
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Solution
The correct option is D Reducing balance
There are various methods of charging depreciation on assets. Most commonly used methods are straight line method and reducing balance method.
Under the reducing balance method, depreciation is charged on the book value of the asset every year. Book value is calculated by deducting the depreciation from its original value in the first year. Than the balance of asset account is considered as book value for the next year and so on.
For example:
Original cost at year I Rs.10000Less: Depreciation @10% for year I Rs. 1000 ------------------Book value at the beginning of year II Rs.9000Less: Depreciation @10% for year II Rs. 900 -----------------Book value at the beginning of year III Rs.8100
Less: Depreciation @10% for year III Rs. 810
There are various methods of charging depreciation on assets. Most commonly used methods are straight line method and reducing balance method.
Under the reducing balance method, depreciation is charged on the book value of the asset every year. Book value is calculated by deducting the depreciation from its original value in the first year. Than the balance of asset account is considered as book value for the next year and so on.
For example:
Original cost at year I Rs.10000
Less: Depreciation @10% for year I Rs. 1000
------------------
Book value at the beginning of year II Rs.9000
Less: Depreciation @10% for year II Rs. 900
-----------------
Book value at the beginning of year III Rs.8100
Less: Depreciation @10% for year III Rs. 810
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