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      Question

      A company uses the Written Down Value (WDV) method to

      calculate depreciation on its fixed assets. On which of the following value of the fixed asset, will the depreciation be calculated by the company? 
      A On original cost of purchase Correct Answer Incorrect Answer
      B On residual value expected at end of life Correct Answer Incorrect Answer
      C On book value at the beginning of the year Correct Answer Incorrect Answer
      D On replacement cost of the asset Correct Answer Incorrect Answer
      E On impaired cost of the asset Correct Answer Incorrect Answer

      Solution

      Under the written-down value method, also known as the reducing balance method, a fixed percentage of depreciation is applied to the decreasing value of the asset.  each year.  Each year, the depreciation is charged on the opening book value of the asset and then reduced by the amount of the depreciation for that year. Consequently, the depreciation amount decreases annually using this approach.

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