Depreciation: Declining Balance quiz #1 Flashcards
Depreciation: Declining Balance quiz #1
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What are the three key variables needed to calculate depreciation using the double declining balance method?
The three key variables are the cost of the asset, the estimated useful life, and the residual (or salvage) value. How is the depreciation rate determined in the double declining balance method?
The depreciation rate is calculated as twice the reciprocal of the asset's useful life. For example, if the useful life is 10 years, the rate is 2 × (1/10) = 20% per year. How does the double declining balance method differ from the straight-line method in handling residual value?
In the double declining balance method, the residual value is not subtracted at the beginning. Instead, depreciation is calculated each year on the book value, and in the final year, a 'plug' amount is used to adjust the book value to equal the residual value. What is the main financial benefit of using the double declining balance method for depreciation?
The main benefit is that it front-loads depreciation expenses, resulting in higher expenses and lower taxable income in the early years, which can lead to tax savings. What are the three key variables needed to calculate depreciation using the double declining balance method?
The three key variables are the cost of the asset, the estimated useful life, and the residual (or salvage) value. How is the depreciation rate determined in the double declining balance method?
The depreciation rate is calculated as twice the reciprocal of the asset's useful life. For example, if the useful life is 10 years, the rate is 2 × (1/10) = 20% per year. How does the double declining balance method differ from the straight-line method in handling residual value?
In the double declining balance method, the residual value is not subtracted at the beginning. Instead, depreciation is calculated each year on the book value, and in the final year, a 'plug' amount is used to adjust the book value to equal the residual value. What is the main financial benefit of using the double declining balance method for depreciation?
The main benefit is that it front-loads depreciation expenses, resulting in higher expenses and lower taxable income in the early years, which can lead to tax savings. What is the formula for calculating the annual depreciation expense using the double declining balance method?
The annual depreciation expense is calculated by multiplying the beginning net book value of the asset by the double declining balance depreciation rate. What happens in the final year of depreciation when using the double declining balance method?
In the final year, a 'plug' amount is calculated so that the asset's book value is reduced exactly to its residual value.
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