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Declining balance depreciation must be watched because it may write the asset

  • A.down faster than the sum of years digits method in every case
  • B.below its salvage value
  • C.above its first cost
  • D.down to exactly zero in the final year

Answer: B

Correct answer: below its salvage value

Because the rate is applied to a shrinking book value and takes no account of salvage, the calculation will carry the book value past the salvage value and towards zero if it is left to run. The charge must therefore be stopped at the salvage value, and many schemes switch to straight line for the remaining years.

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