객관식
Which of the following statements about depreciation expense is true?
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8. Long Lived Assets
Depreciation: Summary of Main Methods
객관식
Which depreciation method results in the highest depreciation expense in the first year of an asset's life?
A
Double-declining balance method
B
Sum-of-the-years'-digits method
C
Straight-line method
D
Units-of-production method
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Understand the concept of depreciation: Depreciation is the allocation of the cost of a tangible asset over its useful life. Different methods of depreciation result in varying expense amounts over time.
Review the Double-Declining Balance Method: This is an accelerated depreciation method that applies a higher depreciation rate in the early years of an asset's life. The formula is: \( \text{Depreciation Expense} = 2 imes \text{Straight-Line Depreciation Rate} imes \text{Book Value at Beginning of Year} \).
Examine the Sum-of-the-Years'-Digits Method: This method also accelerates depreciation but uses a fraction based on the sum of the years of the asset's useful life. The formula is: \( \text{Depreciation Expense} = rac{\text{Remaining Life of Asset}}{\text{Sum of Years}} imes \text{Depreciable Base} \).
Understand the Straight-Line Method: This method spreads the depreciation evenly over the asset's useful life. The formula is: \( \text{Depreciation Expense} = rac{\text{Cost of Asset} - \text{Salvage Value}}{\text{Useful Life}} \).
Review the Units-of-Production Method: This method bases depreciation on the actual usage or production of the asset. The formula is: \( \text{Depreciation Expense} = rac{\text{Units Produced}}{\text{Total Estimated Units}} imes \text{Depreciable Base} \). Compare these methods to determine which results in the highest depreciation expense in the first year.
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