U4, AOS 1 - RB Depreciation Flashcards
What is reducing balance depreciation?
A method of calculating depreciation where an asset loses value at a decreasing rate over its useful life.
What is the primary purpose of reducing balance depreciation?
To allocate the cost of an asset over its useful life more accurately, reflecting its usage and value decrease.
True or False: Reducing balance depreciation results in higher depreciation expenses in the early years of an asset’s life.
True
Fill in the blank: In reducing balance depreciation, the depreciation expense is calculated by multiplying the book value of the asset by the ____ rate.
depreciation
What is the formula for calculating depreciation using the reducing balance method?
Depreciation Expense = Book Value at Beginning of Year x Depreciation Rate
True or False: The reducing balance method is typically used for intangible assets.
False
Provide an example of an asset that might use reducing balance depreciation.
Vehicles, machinery, or equipment.
What happens to the depreciation expense as the asset ages in the reducing balance method?
The depreciation expense decreases each year as the book value of the asset declines.
True or False: The reducing balance method is simpler than the straight-line method.
False
In reducing balance depreciation, which factors influence the depreciation rate?
The expected useful life of the asset and its residual value.
True or False: Reducing balance depreciation can lead to tax benefits in the early years of an asset’s life.
True
Explain the term ‘book value’ in the context of reducing balance depreciation.
The book value is the original cost of the asset minus accumulated depreciation.
Fill in the blank: The reducing balance method is often preferred for assets that ____ rapidly.
depreciate
What is the impact of choosing a higher depreciation rate in reducing balance depreciation?
It results in higher depreciation expenses in the early years, reducing taxable income.
True or False: Once an asset is fully depreciated, it has zero book value.
True
How does reducing balance depreciation differ from straight-line depreciation?
Reducing balance depreciation allocates more expense in the early years, while straight-line allocates evenly over the asset’s life.
What type of financial statement reflects the effects of reducing balance depreciation?
The income statement and balance sheet.
True or False: An asset can have a negative book value under reducing balance depreciation.
False
What is the significance of residual value in the reducing balance method?
Residual value is the estimated value at the end of the asset’s useful life and affects the depreciation calculation.
