Charging the whole cost of asset in the first year itself is not correct. Why?
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Answer:
Limitations of the Written Down Value Method
Limitations of the Written Down Value MethodAlthough this method is based upon a more realistic assumption it suffers from the following limitations
Limitations of the Written Down Value MethodAlthough this method is based upon a more realistic assumption it suffers from the following limitationsIt does not take into consideration the interest on capital invested in the asset.
Limitations of the Written Down Value MethodAlthough this method is based upon a more realistic assumption it suffers from the following limitationsIt does not take into consideration the interest on capital invested in the asset.It does not provide for the replacement of the asset on the expiry of its useful life.
Limitations of the Written Down Value MethodAlthough this method is based upon a more realistic assumption it suffers from the following limitationsIt does not take into consideration the interest on capital invested in the asset.It does not provide for the replacement of the asset on the expiry of its useful life.The formula to obtain the rate of depreciation can be applied only when there is a residual value of the asset.
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