Which method of depreciation results in higher depreciation expense in the early years of an asset's life?
Correct Answer
D) 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. 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 expense, making it significantly higher in the early years compared to other methods. This method is commonly used for assets that lose value quickly or become obsolete rapidly.
Why the Other Options Are Wrong
Option B: Units of production method
While sum-of-years digits is also an accelerated method that does result in higher early-year depreciation, the declining balance method typically produces even higher depreciation in the earliest years, making it the most accurate answer.
Option C: Sum-of-years digits 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.
Memory Technique
Think 'Declining Balance = Declining amounts each year = Started HIGH and goes down' - the word 'declining' tells you it starts at its highest point.
Reference Hint
Look up depreciation methods in the accounting or business management section, typically found in chapters covering asset management or financial accounting principles.
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