Which depreciation method results in higher depreciation expense in the earlier years of an asset's life?
Practice Questions
1 question
Q1
Which depreciation method results in higher depreciation expense in the earlier years of an asset's life?
Straight-Line Method
Declining Balance Method
Units of Production Method
Sum-of-the-Years'-Digits Method
The Declining Balance Method results in higher depreciation expenses in the earlier years due to its accelerated nature.
Questions & Step-by-step Solutions
1 item
Q
Q: Which depreciation method results in higher depreciation expense in the earlier years of an asset's life?
Solution: The Declining Balance Method results in higher depreciation expenses in the earlier years due to its accelerated nature.
Steps: 5
Step 1: Understand what depreciation means. Depreciation is the process of allocating the cost of an asset over its useful life.
Step 2: Learn about different methods of depreciation. There are several methods, but we will focus on the Declining Balance Method and the Straight-Line Method.
Step 3: Know that the Declining Balance Method is an accelerated depreciation method. This means it allows for higher depreciation expenses in the earlier years of an asset's life.
Step 4: Compare it to the Straight-Line Method, which spreads the cost evenly over the asset's life, resulting in the same expense each year.
Step 5: Conclude that because the Declining Balance Method calculates depreciation based on a percentage of the remaining book value, it results in higher expenses in the first few years.
