Residual value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.

Question

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The declining-balance method of depreciation does not take into account the residual value of the asset when determining the depreciation expense. Depreciation is calculated at a fixed percentage rate applied to the book value of the asset, and the book value is reduced each year by the amount of depreciation taken. The residual value is only considered at the end of the asset's useful life when calculating the gain or loss on disposal.

Residual Value Is Not Subtracted from Plant Asset Cost in Determining