Question

Under ________ system, amount of depreciation changes every year.

• A. Reducing Balance
• B. Fixed Instalment
• C. Depreciation Fund
• D. Annuity

Answer 1

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

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Written down value Rs.9000

Less: Depreciation @10% Year II Rs.900

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Written down value Rs.8100

Less : Depreciation @10% Year III Rs.810