Depreciation methods—declining balance definition In the declining balance method of depreciation, which statement is correct?

Introduction / Context:
Depreciation allocates asset cost to accounting periods. In capital-intensive chemical plants, the chosen method affects taxable income, cash flows, and economic indicators like NPV and payback. Understanding the mechanics of declining balance is fundamental.

Given Data / Assumptions:

• Declining balance (e.g., double-declining) uses a constant rate applied to book value at the start of each year.
• Salvage value may cap depreciation in the final year.
• Straight line is the contrasting linear method.

Concept / Approach:
Declining balance accelerates depreciation: higher charges early, lower later. The formula is simple: Depreciation in year n = Rate * Book value at start of year n. Book value reduces each year, so charges decline, unlike straight line where they are equal each year.

Step-by-Step Solution:

Verification / Alternative check:
Compare with straight line: equal charges each year. Only declining balance uses a fixed percentage of opening book value.

Why Other Options Are Wrong:

• Linear decrease and equal annual charges describe straight line, not declining balance.
• “None” is false because option (c) is correct.

Common Pitfalls:
Forgetting to switch to straight line late in life to fully utilize salvage constraints in some tax regimes.

Final Answer:
Annual depreciation equals a fixed percentage of the property value at the beginning of each year.