Reducing Balance Method Quiz

What is the main characteristic of the reducing balance method of depreciation?

• The depreciation expense increases over time

• The depreciation expense decreases over time

• The depreciation expense remains constant over time

• The asset's value increases over time

Which formula is used to calculate the annual depreciation expense using the reducing balance method?

• Depreciation Expense = Cost − Residual Value / Useful Life

• Depreciation Expense = Cost / Useful Life

• Depreciation Expense = Net Book Value × Depreciation Rate

• Depreciation Expense = Cost × Depreciation Rate

If an asset has a net book value of $10,000 and a depreciation rate of 20%, what is the depreciation expense for the year?

• $2,000

• $1,000

• $500

• $200

What happens to the net book value of an asset under the reducing balance method?

• It remains constant

• It increases

• It decreases exponentially

• It decreases linearly

Why might a company choose the reducing balance method over the straight-line method?

• To show higher profits in the early years

• To show lower profits in the early years

• To spread the expense evenly over the asset's life

• To avoid any depreciation expenses

An asset is purchased for $15,000 with a residual value of $3,000 and a useful life of 5 years. What would be the depreciation rate if the company uses the reducing balance method?

• 40%

• 33.3%

• 20%

• 10%

What is the net book value of an asset at the end of Year 3 if it was purchased for $12,000 and the annual depreciation rate is 25%?

• $9,000

• $6,750

• $5,062.50

• $4,500