Depreciation Methods Quiz

Which of the following assets is most likely to be depreciated using the reducing balance method?

• Office furniture

• Land

• Computer equipment

• Building

If a company's financial statements show high depreciation expenses early on, which depreciation method are they likely using?

• Straight-line method

• Units of production method

• Sum-of-the-years'-digits method

• Reducing balance method

How does the reducing balance method affect tax liability in the early years of an asset's life?

• Increases tax liability

• Decreases tax liability

• Has no effect on tax liability

• Tax liability varies randomly

What is the net book value of an asset after two years if it was purchased for $8,000 and the annual depreciation rate is 30%?

• $5,600

• $3,920

• $2,940

• $1,960

Under the reducing balance method, how is the depreciation rate typically determined?

• Based on the asset's initial cost

• Based on the asset's residual value

• Based on the asset's useful life

• Based on the company's revenue

An asset has an initial cost of $20,000 and a residual value of $4,000. Using a 25% depreciation rate, what will be the book value at the end of the first year?

• $16,000

• $15,000

• $14,000

• $13,000

Why is the reducing balance method considered more realistic for some assets?

• It matches expenses with revenues better

• It simplifies accounting procedures

• It increases the asset's value over time

• It avoids any depreciation in the later years

If an asset's depreciation expense using the reducing balance method is $2,500 in Year 1 and $1,875 in Year 2, what is the depreciation rate?

• 20%

• 25%

• 30%

• 35%