Depreciation Concepts and Calculations

The video tutorial explains depreciation, focusing on its definition, etymology, and application to cars. It covers two main types of depreciation: linear and declining balance, providing formulas for each. The tutorial discusses when to use each method, highlighting the benefits of declining balance depreciation for tax deductions.

What is the primary meaning of the prefix 'de-' in the word 'depreciation'?

• Increase

• Stability

• Decrease

• Enhancement

Why do cars typically lose value over time?

• They are stored in a garage.

• They gain historical significance.

• They are used and get damaged.

• They become more technologically advanced.

Which type of depreciation involves a constant amount of value loss each year?

• Exponential

• Straight line

• Variable rate

• Declining balance

What is the initial value of an asset referred to in depreciation calculations?

• Final value

• Salvage value

• V naught

• Depreciated value

In declining balance depreciation, what mathematical concept is it similar to?

• Simple interest

• Compound interest in reverse

• Exponential decay

• Linear growth

Why might a company prefer to use straight line depreciation?

• It results in higher taxes.

• It is more accurate.

• It is simpler mathematically.

• It is required by law.

What is a potential benefit of using declining balance depreciation for tax purposes?

• Higher insurance premiums

• Lower initial costs

• Larger tax deductions

• Increased asset value

Which type of depreciation might be chosen to reflect a rapid initial drop in value?

• Straight line

• Variable rate

• Declining balance

• Exponential

What is a common reason for choosing linear depreciation in large organizations?

• It results in higher asset values.

• It is legally mandated.

• It is easier to manage for many assets.

• It is more complex.

How does depreciation affect insurance costs?

• Depreciation does not affect insurance costs.

• Higher depreciation leads to lower insurance costs.

• Lower depreciation leads to higher insurance costs.

• Higher depreciation leads to higher insurance costs.