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Practice Activity 3.4 The reducing balance method of depreciation

Adaeze Nwobu

The facts are the same as Practice Activity 3.3.


Required: Calculate the depreciation rate using the method of reducing balance. Use the depreciation rate to calculate depreciation expense for 31 July 2019, 2020, 2021, and 2022.


Suggested answers to practice activity 3.4

Hint: The rate of depreciation using the reducing balance method is computed using the formula:

Rate of depreciation = 1 - y√(expected disposal value/cost of the asset)

Where y represents the number of estimated useful years of the asset


Depreciation using the reducing balance method is computed as follows:

r = 1 – (7√2,000/50,000)

= 1 – 0.6314

= 0.3686

Multiply 0.3686 by 100

= 36.86%


The depreciation rate is 37% when approximated to a whole number.




 
 
 

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