Question

The formula for calculating declining balance depreciation is the depreciation rate per year times

a. the cost less the residual value.
b. the book value at the beginning of the year.
c. the cost less the residual value less the accumulated depreciation.

Answer 1

Declining balance depreciation is calculated by multiplying the annual depreciation rate by the asset's book value at the start of the year. This method results in accelerated depreciation over the asset's life, which is a key consideration in economic measures like net national product (NNP).

Step-by-step explanation:

The formula for calculating declining balance depreciation involves multiplying the depreciation rate per year by the book value at the beginning of the year. Unlike straight-line depreciation which factors in residual value in its initial calculation and then depreciates the same amount each year, declining balance depreciation does not subtract the residual value but rather applies the rate to the reduced book value each year, reflecting the accelerated depreciation of the asset's value as it ages.

In economic discussions related to assets, depreciation is an important concept that represents how physical capital wears out or reduces in value over time, playing a key role in calculating net national product (NNP) by subtracting the value of this depreciation from gross national product (GNP).