The Calculation of Depreciation Using the Declining Balance Method

question 197

Multiple Choice

The calculation of depreciation using the declining balance method

• A) ignores salvage value in determining the amount to which a constant rate is applied.
• B) multiplies a constant percentage times the previous year's depreciation expense.
• C) yields an increasing depreciation expense each period.
• D) multiplies a declining percentage times a constant book value.

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Definitions:

Cash Flow Stream

A series of cash inflows and outflows over a period of time, often used in financial analysis and valuation.

Effective Return

The actual yield or rate of return achieved by an investment, accounting for compounding interest or reinvestments, as opposed to the nominal rate.

Compounded Daily

Refers to the process where interest earned is added to the principal daily, allowing the investment to grow at an accelerated rate due to the effects of compounding.

EAR

Effective Annual Rate, the interest rate on an investment or loan that considers compounding within the year.