Question

What are the limitations of the written down value method?

Answer 1

Written down value method is also known as the reducing balance method. It has the following limitations.

1.The assets cannot be completely written off using the diminishing balance method.

2. The rate of depreciation cannot be determined appropriately.
3. It results in a lower net income during the initial years as a higher amount of depreciation is charged on assets.
4. The actual use of assets is not taken into account.

Also read:

• True and False Questions on Depreciation
• What Is Depreciation
• MCQs on Depreciation

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