Which method of depreciation results in higher depreciation expenses in the early years of an asset's life?
Correct Answer
A) 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. This contrasts with straight-line depreciation which spreads the cost evenly over the asset's life.
Why This Is the Correct Answer
The double declining balance method is an accelerated depreciation method that applies a fixed percentage (typically double 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 most aggressive accelerated method among the options provided.
Why the Other Options Are Wrong
Option B: Units of production method
While sum-of-years-digits is also an accelerated method that produces higher early-year depreciation, it results in lower depreciation expenses in the early years compared to the double declining balance method.
Option C: 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 doesn't necessarily result in higher early-year expenses.
Memory Technique
DDB = 'Drops Down Big' - the double declining balance method drops down big amounts in early years, then smaller amounts later.
Reference Hint
Look up 'Depreciation Methods' or 'Accelerated Depreciation' in accounting or business management chapters of your contractor reference manual.
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