Which depreciation method results in higher depreciation expenses 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 applies a constant rate to the declining book value, resulting in higher depreciation expenses in early years and lower expenses in later years.
Why This Is the Correct Answer
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. Since the book value is highest in the first year, the depreciation expense is also highest in the first year and decreases each subsequent year. This front-loads the depreciation expenses, making it particularly useful for assets that lose value quickly or become obsolete rapidly.
Why the Other Options Are Wrong
Option A: Units of production method
The units of production method bases depreciation on actual usage or output rather than time, so depreciation expense varies with the level of activity. It doesn't inherently result in higher early-year expenses unless the asset is used more heavily in its 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. It does not create higher expenses in early years - the annual depreciation remains constant throughout the asset's life.
Memory Technique
Think 'Declining = Diving down fast' - the declining balance method makes depreciation expenses dive down quickly from high early amounts to lower later amounts.
Reference Hint
Look up 'Depreciation Methods' or 'Accelerated Depreciation' in accounting or business management chapters of your reference materials.
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