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The MCQs below are drawn from the Accountancy & Auditing subject category.
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2471
An asset costing £25,000 is depreciated at 30% per annum using the reducing balance method. What is the net book value after two years?
Under the reducing balance method, depreciation is calculated on the book value at the start of each year. Year 1 depreciation: £25,000 * 30% = £7,500. Book value at end of Year 1: £17,500. Year 2 depreciation: £17,500 * 30% = £5,250. Net book value at end of Year 2: £17,500 - £5,250 = £12,250.
2472
Under the diminishing balance method of depreciation, how do the depreciation amount and rate behave over time?
In the diminishing balance method (also known as the written down value method), the depreciation rate is applied to the declining book value of the asset. Since the book value decreases each year, the resulting depreciation expense amount also decreases annually, even though the percentage rate applied remains constant throughout the asset's useful life.
2473
A vehicle with an initial cost of $20,000 is depreciated at a rate of 20% per annum using the diminishing balance method. Calculate the depreciation expense for the second year.
Under the diminishing balance method, depreciation is calculated on the book value. Year 1 depreciation is 20% of $20,000, which is $4,000. The book value at the start of Year 2 is $16,000 ($20,000 - $4,000). Therefore, Year 2 depreciation is 20% of $16,000, resulting in $3,200.
2474
A vehicle purchased for 200,000 is sold for 140,000 after two years. Given a 10% depreciation rate on the written down value, what is the resulting profit or loss?
Year 1 depreciation is 20,000 (10% of 200,000), leaving a book value of 180,000. Year 2 depreciation is 18,000 (10% of 180,000), leaving a final book value of 162,000. Selling the asset for 140,000 results in a loss of 22,000 (162,000 - 140,000).
2475
Under which depreciation method does the book value of an asset typically not reach zero?
The Written Down Value (WDV) method applies a fixed percentage of depreciation to the remaining book value of the asset each year. Because the base amount decreases annually, the depreciation charge also decreases, theoretically leaving a residual value rather than reducing the asset's book value to zero.
2476
What is another common name for the written down value method of depreciation?
The written down value method, also known as the diminishing balance method, applies a fixed percentage of depreciation to the book value of the asset at the beginning of each year, causing the depreciation charge to decrease over time.
2477
What is the alternative name for the Written Down Value method of depreciation?
The Written Down Value (WDV) method, also known as the Diminishing Balance Method or Reducing Balance Method, applies a fixed percentage of depreciation to the asset's book value at the beginning of each period. This results in higher depreciation charges in the early years of an asset's life, which gradually decrease over time.
2478
In which country is the double-declining balance method of depreciation most commonly utilized?
The double-declining balance method is an accelerated depreciation technique. While used globally, it is particularly prevalent in the United States, where it is frequently applied for tax and financial reporting purposes to match higher depreciation expenses with the earlier years of an asset's useful life, reflecting the higher productivity of new assets.
2479
What is the alternative name for the reducing balance method of depreciation?
The reducing balance method is commonly referred to as the written down value (WDV) method. Under this approach, depreciation is charged at a fixed percentage on the book value of the asset, which decreases each year as accumulated depreciation is subtracted from the original cost.
2480
A motor vehicle costing $20,000 is depreciated at 20% per annum using the reducing balance method. If the vehicle is sold after two years with no profit or loss, what was the sale price?
After year one, the book value is $20,000 - ($20,000 * 20%) = $16,000. After year two, the book value is $16,000 - ($16,000 * 20%) = $12,800. Since the sale resulted in no profit or loss, the sale price must equal the book value of $12,800.
