Reducing Balance Method of Depreciation

The video tutorial explains the reducing balance method of depreciation, where an asset's value is reduced by a set percentage each year. Using a van purchased for £30,000 as an example, the tutorial demonstrates how to calculate depreciation over a 4-year period. The method results in larger depreciation expenses in the initial years compared to the straight line method, where depreciation is consistent annually. The tutorial provides a detailed calculation process and highlights the differences between the two methods.

What is the main difference between the reducing balance method and other depreciation methods?

• It keeps the asset value constant.

• It increases the asset value by a set percentage each year.

• It reduces the asset value by a set percentage each year.

• It reduces the asset value by a fixed amount each year.

In the reducing balance method, what is the first step to calculate depreciation?

• Add the residual value to the historic value.

• Divide the historic value by the depreciation percentage.

• Subtract the residual value from the historic value.

• Multiply the historic value by the depreciation percentage.

What was the historic value of the van purchased by the bakery?

• £30,000

• £35,000

• £25,000

• £20,000

What is the expected annual depreciation rate for the bakery's van?

• 20%

• 15%

• 25%

• 10%

How much is the depreciation for the first year if the van's value is £30,000 and the depreciation rate is 20%?

• £6,000

• £5,000

• £7,000

• £4,000

What is the van's value at the end of the first year after depreciation?

• £20,000

• £26,000

• £22,000

• £24,000

What is the van's value at the start of the second year?

• £24,000

• £26,000

• £28,000

• £30,000

How does the depreciation expense change over the years in the reducing balance method?

• It increases each year.

• It remains the same each year.

• It decreases each year.

• It fluctuates randomly.

What is the residual value of the van after 4 years of reducing balance depreciation?

• £16,288

• £14,288

• £12,288

• £10,288

How does the reducing balance method differ from the straight line method in terms of annual depreciation?

• Reducing balance records increasing depreciation each year.

• Straight line records decreasing depreciation each year.

• Reducing balance records the same depreciation each year.

• Straight line records the same depreciation each year.