Question

Under the diminishing balance method of providing depreciation, depreciation is charged__________.

• A. at fixed rate on the reducing balance every year
• B. at reducing rate on the fixed amount every year
• C. at reducing rate on the reducing balance every year
• D. none of the above

Answer 1

Answer: (A)

at fixed rate on the reducing balance every year

Option A is the correct one.

Under Reducing balance method, the value of the asset never reduces to zero. Depreciation is charged at a fixed percentage on the book value of the asset. As the book value reduces every year, it is also known as the Reducing Balance Method or Written-down Value Method.