Question

The compound interest method of depreciation values assets at the end of each period at:   ...

The compound interest method of depreciation values assets at the end of each period at:

  

  

Group of answer choices

A) the present value of their remaining cash flows using the discount rate (i)

B) the present value of their remaining cash flows using the internal rate of return (IRR)

C) the net book value per straight line depreciation procedures

D) the total of their remaining cash flows

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Answer #1

B) the present value of their remaining cash flows using the internal rate of return (IRR)

The depreciation under this method is calculated by the following step:

1. Estimate of the future cash flows that are associated with the asset.

2. Find the IRR of the above cash flows

3. Multiply that IRR by the asset's initial book value to get Depreciation of 1st year.

and the asset will be depreciated by Multiplying the opening balance with IRR. which means the closing balance of every Year will be the Present value of Such cashflow by the end of that year.

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