Which depreciation method results in higher depreciation expense in the early years of an asset's life?
Correct Answer
B) Declining balance method
The declining balance method is an accelerated depreciation method that results in higher depreciation expenses in the early years of an asset's useful life. Straight-line method spreads depreciation evenly over the asset's life.
Why This Is the Correct Answer
The declining balance method is an accelerated depreciation method that applies a fixed percentage rate to the asset's remaining book value each year. This results in the highest depreciation expense in the first year, with decreasing amounts in subsequent years. Since the book value is highest at the beginning of the asset's life, applying the depreciation rate to this larger amount produces the maximum depreciation expense in early years.
Why the Other Options Are Wrong
Option A: Straight-line method
The units of production method bases depreciation on actual usage or output rather than time, so depreciation expense varies with production levels and is not necessarily higher in early years.
Option C: Sum-of-years digits 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 D: Units of production method
While sum-of-years digits is also an accelerated method that front-loads depreciation, the declining balance method typically produces even higher depreciation expenses in the very early years of an asset's life.
Memory Technique
Think 'Declining Balance = Declining amounts but BIG start' - it declines each year but starts with the biggest depreciation expense in year one.
Reference Hint
Look up 'Depreciation Methods' or 'Accelerated Depreciation' in accounting or business management chapters of contractor reference materials
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