Question

Depreciation on the diminishing balance method on a machinery of 2,000 at the
rate of 10% per annum after three years will be:
(a) * 1,400
(b) 145.8
(c)542
(d) None of the above.

Answer 1

Answer:

(c) 542

Explanation:

1st year 2000×10%=200 (2000-200=1800)

2nd year 1800×10%=180 (1800-180 =1620)

3rd year 1620×10%=162

200+180+162= 542

Answer 2

Concept:

Diminishing Balance Method-

• The diminishing balance method, also known as the reducing balance method, is a method of calculating depreciation at a fixed percentage on the asset's balance from the previous year.
• The amount of depreciation imposed for each period is not fixed, but it gradually decreases as the asset's opening balance in each year decreases.

Given:

• Cost of machinery = 2000
• Rate = 10%
• Time = 3 years

Find:

Depreciation amount

Solution:

Depreciation in Year 1 = 2000 x 10% = 200

Depreciation in year 2 = (2000 - 200) x 10% = 180

Depreciation in year 3 = (1800 - 180) x 10% = 162

Depreciation in year 4 =( 1620 - 162) x 10% = 145.8

Hence, the depreciation after three years will be 145.8

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