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Question

Under ________ system, amount of depreciation changes every year.

A
Reducing Balance
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B
Fixed Instalment
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C
Depreciation Fund
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D
Annuity
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Solution

The correct option is A Reducing Balance
Under reducing balance method of depreciation, the depreciation is charged on the written down value of the asset every year. In such case, depreciation amount changes every year and get reduces as written down value decreases every year.

Below is the example:

Original Cost of Asset: Rs.10000
Less: Depreciation @10% Year I Rs. 1000
---------------------
Written down value Rs.9000
Less: Depreciation @10% Year II Rs.900
---------------------
Written down value Rs.8100
Less : Depreciation @10% Year III Rs.810

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