In which scenario would a company most likely choose the sum-of-the-years'-digits method?
Practice Questions
1 question
Q1
In which scenario would a company most likely choose the sum-of-the-years'-digits method?
When the asset is expected to generate consistent revenue
When the asset's benefits are expected to decline over time
When the asset has a long useful life
When the asset is used sporadically
The sum-of-the-years'-digits method is chosen when the asset's benefits are expected to decline over time, allowing for higher depreciation initially.
Questions & Step-by-step Solutions
1 item
Q
Q: In which scenario would a company most likely choose the sum-of-the-years'-digits method?
Solution: The sum-of-the-years'-digits method is chosen when the asset's benefits are expected to decline over time, allowing for higher depreciation initially.
Steps: 5
Step 1: Understand what the sum-of-the-years'-digits method is. It is a way to calculate depreciation of an asset.
Step 2: Know that depreciation is how we spread the cost of an asset over its useful life.
Step 3: Recognize that some assets lose value faster in the beginning and slower later on.
Step 4: Identify that the sum-of-the-years'-digits method allows for higher depreciation in the early years.
Step 5: Conclude that a company would choose this method when they expect the asset to provide more benefits in the early years and less in the later years.
