Question

A principal objection to the straight-line method of depreciation is that it...(a)provides for the declining productivity of an aging asset.(b)ignores variations in the rate of asset use.(c)tends to result in a constant rate of return on a diminishing investment base.(d)gives smaller periodic write-offs than decreasing charge methods.

Answer 1

Answer: Option B

Explanation: Under the straight line method of depreciation, the value of the asset is divided equally to its useful life. It is computed as follows :-

$=\:\frac{Cost\:-salavge\:value}{useful\:life}$

NOW,

A. Straight line method as per the above equation provides for equal productivity.

B. Dividing the usefulness equally results in ignorance of change in the rate of asset use as the asset may be used less initially but more in later years.

C. As the expense from the method remains same and the actual value of the asset diminishes it results in higher rate of return.

D. Decreasing charge method charge depreciation on written down value whereas straight line charges t initial cost thus it gives higher write offs than decreasing charge.