Which formula represents Declining Balance Depreciation?

Declining Balance Depreciation is a method where an asset loses value at an exponential rate rather than a linear rate. The correct formula for this method is represented as S = V0(1 - r)n.

In this formula:

• S represents the value of the asset after n periods.

• V0 is the initial value or purchase price of the asset.

• r is the rate of depreciation expressed as a decimal.

• n is the number of time periods that have passed (e.g., years).

The reasoning behind using (1 - r) is that it reflects how the value shrinks by a certain percentage each period. Each time you calculate the balance after a period, you take the remaining value from the previous period and reduce it again by the same percentage, reflecting the declining balance nature. Therefore, the asset's value decreases more significantly in earlier years and less so as time progresses, which is characteristic of the declining balance method.

Other formulas in the options do not accurately capture this intended behavior of declining balance depreciation. The one that involves adding or subtracting fixed amounts or using addition indicates a linear depreciation approach, which does not apply here. In essence, understanding the exponential nature of the asset's depreciation is key to identifying the