What is the primary advantage of the declining balance method of depreciation?
Practice Questions
1 question
Q1
What is the primary advantage of the declining balance method of depreciation?
It is simple to calculate.
It provides tax benefits in early years.
It results in higher book value.
It is the most commonly used method.
The declining balance method allows for higher depreciation expenses in the early years, providing tax benefits.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the primary advantage of the declining balance method of depreciation?
Solution: The declining balance method allows for higher depreciation expenses in the early years, providing tax benefits.
Steps: 5
Step 1: Understand what depreciation is. Depreciation is the process of allocating the cost of a tangible asset over its useful life.
Step 2: Learn about the declining balance method. This method calculates depreciation based on a fixed percentage of the asset's remaining book value each year.
Step 3: Recognize that in the early years, the asset's book value is higher, leading to larger depreciation expenses.
Step 4: Realize that higher depreciation expenses in the early years can reduce taxable income, resulting in tax benefits for the business.
Step 5: Conclude that the primary advantage of the declining balance method is the ability to claim higher depreciation expenses early on, which can help with cash flow and tax savings.
