Question

A fixed asset with a five-year estimated useful life and no scrap value is sold at the end of the second year of its useful life. How would using the straight-line method of depreciation instead of the double-declining balance method of depreciation affect a gain or loss on the sale of the plant asset?

		A gain would be greater or a loss would be less using straight-line depreciation.
		A gain would be less or a loss would be greater using straight-line depreciation.
		A gain would be less or a loss would be less using straight-line depreciation.
		Neither the gain or loss would be different using straight-line depreciation instead of double-declining-balance method.

Answer 1

Correct answer : B) A Gain would be less or a loss would be greater using straight-line depreciation

Reason : Using Straight line depreciation, the book value of Asset would be more as compared to the book value using Double-Decline method, therefore the amount of Gain on sale of asset would be less and amount of loss on sale of asset would be more as compared to that of Double decline method of depreciation.

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