MB-310 Manage Fixed Assets Practice Question
A company has a fixed asset with a value model that uses the 'Reducing balance' depreciation method with a factor of 200 and a useful life of 5 years. After the first year, the net book value is 60,000. The accountant notices that the depreciation for the second year is calculated differently than expected and asks the consultant to explain how the reducing balance method computes depreciation in Dynamics 365 Finance. What should the consultant explain?
⚠ Common exam trap
Test-takers frequently confuse reducing balance with a fixed percentage of original cost, when the method actually applies the rate to the declining net book value.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
The reducing balance method calculates depreciation by applying the factor to the straight-line percentage and then to the net book value, and it can switch to straight line when beneficial.
The reducing balance method applies a rate derived from the straight-line percentage multiplied by the factor to the net book value each period. Dynamics 365 Finance also allows an automatic switch to straight-line when that method yields a higher depreciation amount, ensuring the asset is fully depreciated by the end of its useful life. This produces higher depreciation in early periods and lower amounts later.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
The reducing balance method calculates depreciation by applying the factor to the straight-line percentage and then to the net book value, and it can switch to straight line when beneficial.
Why this is correct
In Dynamics 365 Finance, the reducing balance method multiplies the straight-line rate by the factor (for example, 200% gives double declining balance) and applies that rate to the net book value each period. The system also supports an automatic switch to straight line when the straight-line amount exceeds the reducing balance amount, which spreads the remaining value evenly.
- ✗
The reducing balance method always depreciates a fixed percentage of the original acquisition cost each period, ignoring net book value.
Why it's wrong here
Depreciating a fixed percentage of original cost describes the straight line or a fixed percentage of cost method, not reducing balance. The reducing balance method applies the percentage to the remaining net book value, so the expense declines over time. This option misstates the core behavior of the method and would produce a different depreciation schedule.
- ✗
The reducing balance method requires that the factor be set to 100 and that the useful life be entered in months rather than years.
Why it's wrong here
The factor is a multiplier of the straight-line rate and can be set to values such as 150, 200, or others; setting it to 100 would simply produce straight-line depreciation. The useful life is entered in the unit selected on the value model, which can be years or months, but that is not specific to reducing balance. This option misstates the configuration requirements.
- ✗
The reducing balance method uses the factor to divide the acquisition cost by the useful life, then multiplies by the factor each year.
Why it's wrong here
Dividing acquisition cost by useful life and then multiplying by the factor is essentially a modified straight-line calculation, not reducing balance. The reducing balance method applies the derived rate to net book value, not to the original cost. This option would produce a depreciation amount that does not decrease as the asset is depreciated, which is incorrect.
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Last reviewed September 2026 · checked against the official Microsoft exam blueprint
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