Gujarat BoardEnglish MediumSTD 11 CommerceAccountP2 C2 Depreciation Accounts3 Marks
Question
Write short-note on : $(A)$ Reducing Balance Method :
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Answer
In this method the annual amount of depreciation is reducingevery year. Due to this it is known as reducing balance method.
$(1)$ Method to determine depreciation amount :Under this method every depreciation iscalculated on opening balance of asset at the predetermined rate. Opening balance meansclosing balance of the previous year after deduction of depreciation. The annual amountof depreciation can be obtained with the following formula: Annual amount of depreciation $(D) =\frac{C \times R}{100}$ Where, $D =$ Annual depreciation, $C =$ Cost price, $R =$ Rate of depreciation.
$(2)$ Speciality: $(1)$ Every year the amount of annual depreciation is reduces. $(2)$ Under thismethod, balance between depreciation amount and repairing expense is maintained.$(3)$ When we calculate the amount of depreciation we can not get full amount of asset.
$(3)$ Advantages: $(1)$ This method is scientific. $(2)$ When the amount of assets change at thatis not necessary to find the depreciation. This is simple method. $(3)$ This method isapplicable on profit of income.$(4)$ In this method, balance between depreciation amountand repairing expense is maintained.
$(4)$ Disadvantages : $(1)$ This method is not simple as equal instalment method. $(2)$ Theinterest on capital of asset is not considered.
$(5)$ Appropirate : This method is appropriate for that asset which assets usages is of longtime after its usage its there is book value available. For example: building, plant andmachines, furniture and fixtures, etc.
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