Question

In calculating depreciation: a.Double declining balance is a method of straight-line depreciation. b.MACRS depreciation requires that salvage value be taken into account. c.Straight-line depreciation is higher than double declining balance depreciation in the early years. d.Straight-line depreciation is higher than double declining balance depreciation in the later years.

Answer 1

Answer:

The correct answer is letter "D": Straight-line depreciation is higher than double-declining-balance depreciation in the later years.

Explanation:

With the straight-line approach, depreciation is distributed equally during the life cycle of an asset. While using the double-declining-balance approach, a higher amount of depreciation is allocated during the first years while the asset is highly used and the depreciation reduces as long as the life of the asset ends.

Thus, given a certain asset, the depreciation with the double-declining-balance will be minimum at a later age but evenly distributed using the straight-line method. Then, the amount of depreciation with the straight-line method is likely to be higher.