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What is depreciation?
The systematic allocation of the cost of an asset over its useful life.
What is the purpose of depreciation?
To match the cost of an asset with the revenue it generates over time.
What is the Reducing Balance Method also known as?
Declining Balance Method.
How does the Reducing Balance Method determine depreciation expense?
By applying a fixed percentage to the book value of the asset each year.
Why is the Reducing Balance Method suitable for certain assets?
Because it recognizes more depreciation in the earlier years when assets lose value faster.
What is the formula for calculating depreciation expense using the Reducing Balance Method?
Depreciation Expense = Book Value at Beginning of Year x Depreciation Rate.
If an asset has a useful life of 5 years, what could its depreciation rate be?
20% (100% / 5 years).
Calculate the Year 1 depreciation for an asset purchased at $10,000 with a 20% depreciation rate.
$2,000.
What is the book value at the end of Year 1 for an asset purchased at $10,000 after depreciating $2,000?
$8,000.
What are two advantages of the Reducing Balance Method?
It accelerates depreciation to match revenue generation patterns. 2. It offers tax benefits by reducing taxable income in the early years.
Name one disadvantage of the Reducing Balance Method.
It requires more frequent calculations and updates of book values.
How does the depreciation expense trend differ between the Reducing Balance Method and the Straight-Line Method?
The Reducing Balance Method shows decreasing depreciation expenses over time, while the Straight-Line Method reports the same amount each year.
What types of assets commonly use the Reducing Balance Method?
Vehicles, machinery, and technology equipment.
What is the conclusion regarding the Reducing Balance Method?
It reflects the asset’s usage pattern and is particularly useful for assets losing value quickly early in their lifecycle.
How is the annual depreciation calculated under the Straight-Line Method?
Annual Depreciation = (Cost - Residual Value) / Useful Life.
What's the total accumulated depreciation after 3 years for an asset with an annual depreciation of $1,800?
$5,400.
Calculate the loss on sale if an asset valued at $4,600 is sold for $4,000.
$600 (loss).
What journal entries are made for disposing of an asset sold for $4,000 with $5,400 accumulated depreciation?
Debit Cash $4,000, Debit Accumulated Depreciation $5,400, Debit Loss on Disposal $600, Credit Asset $10,000.
