BUSINESS ADMINISTRATION
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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depreciate assets by an equal amount every year
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depreciate more during the first years than in the later years
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depreciate annually based on a decreasing weighting factor based on the economic life remaining
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None of the answers above is correct
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Detailed explanation-1: -The sum of the years method assumes that the productivity of the asset is the highest in the initial years and goes on decreasing in the subsequent years. Therefore, the method charges a higher depreciation in the early years.
Detailed explanation-2: -Understanding Sum-of-the-Years’ Digits Under the SYD method, the depreciation rate percentage for each year is calculated as the number of years in remaining asset life for the same year divided by the sum of remaining asset life every year through the asset’s life.
Detailed explanation-3: -The double declining balance (DDB) depreciation method is an approach to accounting that involves depreciating certain assets at twice the rate outlined under straight-line depreciation. This results in depreciation being the highest in the first year of ownership and declining over time.
Detailed explanation-4: -The sum of the years’ digits method is used to accelerate the recognition of depreciation. Doing so means that most of the depreciation associated with an asset is recognized in the first few years of its useful life. This method is also called the SYD method.
Detailed explanation-5: -The DDB method records larger depreciation expenses during the earlier years of an asset’s useful life, and smaller ones in later years. As a result, companies opt for the DDB method for assets that are likely to lose most of their value early on, or which will become obsolete more quickly.