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Which depreciation method would be most appropriate for a vehicle that is expect

Practice Questions

Q1
Which depreciation method would be most appropriate for a vehicle that is expected to have a higher usage in the first few years?
  1. Straight-Line Method
  2. Declining Balance Method
  3. Units of Production Method
  4. Sum-of-the-Years'-Digits Method

Questions & Step-by-Step Solutions

Which depreciation method would be most appropriate for a vehicle that is expected to have a higher usage in the first few years?
  • Step 1: Understand that depreciation is how we account for the loss of value of an asset over time.
  • Step 2: Recognize that some assets, like vehicles, lose value faster in the beginning due to higher usage.
  • Step 3: Learn about different depreciation methods. The two common methods are Straight-Line and Declining Balance.
  • Step 4: Know that the Straight-Line method spreads the loss of value evenly over the asset's life.
  • Step 5: Understand that the Declining Balance method allows for a larger deduction in the early years, reflecting higher usage.
  • Step 6: Conclude that for a vehicle with higher usage in the first few years, the Declining Balance Method is the best choice.
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