What is the primary characteristic of the Declining Balance Method of depreciation?
Practice Questions
1 question
Q1
What is the primary characteristic of the Declining Balance Method of depreciation?
It uses a fixed percentage of the asset's book value.
It allocates the same amount each year.
It is based on the number of units produced.
It is only used for tax purposes.
The Declining Balance Method uses a fixed percentage of the asset's book value, resulting in higher depreciation expenses in the earlier years.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the primary characteristic of the Declining Balance Method of depreciation?
Solution: The Declining Balance Method uses a fixed percentage of the asset's book value, resulting in higher depreciation expenses in the earlier years.
Steps: 6
Step 1: Understand that depreciation is how we account for the decrease in value of an asset over time.
Step 2: Learn that the Declining Balance Method is one way to calculate depreciation.
Step 3: Know that this method uses a fixed percentage to calculate depreciation.
Step 4: Realize that the percentage is applied to the asset's current book value, not its original cost.
Step 5: Recognize that because the book value decreases each year, the depreciation expense is higher in the earlier years.
Step 6: Conclude that the primary characteristic of this method is that it results in higher depreciation expenses at the beginning of the asset's life.
