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Q.1: Do we subract scrap value in Reducing balance method from cost/Net book value of asset? If not please give reason for it ? also share correct formula to calculate per yr depreciation by reducing balance method if scrap value is given?
Q.2 uselife life, dep method & scrap value which is an estimate and which are accounting policies?
Q1: No – we do not subtract scrap value if we are using reducing balance. You could take it into account, but it would be complicated and we do not bother (either in the exam, or in practice). There would be no point in creating the extra work, since we are not trying to show a ‘true’ value for the asset anyway.
Q2: Useful like and scrap value are estimates. The method we choose for depreciation (e.g. straight line, reducing balance) is an accounting policy.
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