Which depreciation method results in higher depreciation expense in the early years of an asset's life?
Correct Answer
C) Double declining balance method
The double declining balance method is an accelerated depreciation method that results in higher depreciation expenses in the early years of an asset's useful life.
Why This Is the Correct Answer
The double declining balance method is an accelerated depreciation method that applies twice the straight-line rate to the declining book value each year. This results in the highest depreciation expense in the first year, with decreasing amounts in subsequent years. It's specifically designed to front-load depreciation expenses, making it the method that produces the highest early-year depreciation among all standard methods.
Why the Other Options Are Wrong
Option A: Straight-line method
The straight-line method spreads depreciation evenly across all years of the asset's useful life, resulting in the same depreciation expense each year rather than higher amounts in early years.
Option B: Units of production method
The units of production method bases depreciation on actual usage rather than time, so depreciation expense varies with production levels and doesn't necessarily result in higher early-year expenses.
Option D: Sum-of-years digits method
While sum-of-years digits is also an accelerated method that produces higher early-year depreciation, it results in lower early-year expenses compared to the double declining balance method.
Memory Technique
DDB = 'Double Down Big' - you're doubling down on big depreciation expenses in the early years to maximize tax benefits quickly.
Reference Hint
Look up 'Depreciation Methods' or 'Accelerated Depreciation' in accounting or business management chapters of your contractor reference manual.
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