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CSEET · Fundamentals of Accounting · Depreciation and Amortization

Under the Written Down Value (diminishing balance) method, how does the annual depreciation charge behave over the useful life of an asset, assuming the rate stays constant?

The depreciation charge decreases each year under the WDV method, because a constant rate is applied to the asset's reducing book value. The diminishing balance method results in a decreasing charge, whereas straight-line gives a constant charge.

  1. AIt stays constant every year
  2. BIt decreases each year because the rate is applied to a reducing book valueCorrect
  3. CIt increases each year because the asset ages
  4. DIt is based on the revenue earned from the asset

Explanation

Under the WDV method a fixed percentage is applied to the opening book value, which falls each year after depreciation is deducted. So the charge keeps decreasing. A constant charge is a feature of the straight-line method, provided the residual value does not change.

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