Day: November 9, 2019

If the depreciation on a fixed asset is calculated by reference to the reducing balance method . . .

Select ONE answer:

1. then, in relation to that particular fixed asset, there will be an equal depreciation charge in the profit and loss account of each year during the life of the asset.
2. the depreciation charge in the profit and loss account in respect of that asset will decrease each year over the life of the asset.
3. the depreciation charge in the profit and loss account relating to that asset will be greater in the later years of the life of the asset than in the earlier years.
4. all other things being equal, net profit will be greater in the earlier years of the life of the asset than in the later years.

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. This would be true in relation to straight-line depreciation but it is not true in relation to reducing balance depreciation.
2. Correct
3. The reverse is true i.e. answer 2.
4. All other things being equal, profit will be greater in the later years than in the earlier years of the life of the asset because the depreciation charge is declining over time.

 

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