4.3. Illustration of Switching Process

Try these first

1. 1.

   What is the main purpose of depreciation?

   Hint

   Think about why businesses spread out the expense of an asset.

2. 2.

   Define salvage value.

   Hint

   Consider what you could sell an asset for when it's no longer useful.

3. 3.

   What is the Double Declining Balance Method?

   • An accelerated depreciation method
   • A fixed rate method
   • A cumulative depreciation method

   Hint

   Think about how depreciation accelerates under this method.

4. 4.

   True or False: The Straight Line method allows for varying depreciation amounts.

   • True
   • False

   Hint

   Consider how consistency works in this method.

5. 5.

   An asset costs ₹ 100,000 with a salvage value of ₹ 10,000 and a life of 5 years. Calculate the first-year depreciation using both methods, and suggest when you might switch methods.

   Hint

   Remember how each method calculates depreciation—compare your results!

6. 6.

   If an asset depreciated under the DDB method leads to a book value of ₹ 2,000 while the salvage is ₹ 3,000, how should you adjust your method, and what calculation would you apply?

   Hint

   Revisit your formulas for switching methods!