Chapter 16

Question 1

Reducing Balance Depreciation

Answer 1

A method of depreciation that allocates more depreciation in the early years of an assets life and less depreciation in he later years

Does not have a consistent revenue earning pattern over the life of the asset.

Question 2

Carrying Value

Answer 2

historic cost of an asset less accumulated depreciation

Question 3

Which depreciation to use?

Answer 3

Consider revenue earning pattern of asset

If the asset is expected to be more productive in its earlier years and therefore will generate more revenue, the reducing balance method should be used as it allocates more depreciation in the early years and less when the asset is older.

If the asset is expected to have a constant revenue earning pattern, the straight line may be suitable as this method allocates the same amount of depreciation every year, regardless of the age of the asset.

Question 4

General journal

Answer 4

Depreciation of Vehicle - Debit

Accumulated depreciation of vehicle - Credit