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What is the reason to not include scrap value of an asset in depreciation calculation in diminishing balance method.
One reason is that although it is possible, it would be unnecessarily complicated.
More importantly, it is impossible in practice to know what the scrap value is going to be, or when it will be decided to scrap the machine.
Remember that the purpose of depreciation is never to try and arrive at a ‘true’ value for the asset, but instead it is to spread the cost of the asset over its life.
(Incidentally, in the exam it will not be called ‘diminishing balance’ – it is the ‘reducing balance’ method)
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