Question

1. Which depreciation method is guaranteed to depreciate an asset to its salvage value?

Straight line depreciation

Declining balance depreciation

Both of these methods

Neither of these methods

2. Which depreciation method depreciates an asset more quickly?

Straight line depreciation

Declining balance depreciation

Both of these methods

Neither of these methods

3. Which depreciation method is a book accounting method of depreciation used to compute depreciation for financial statements such as an income statement or balance sheet (vs. a tax accounting method of depreciation method, used to calculate tax liability).

Straight line depreciation

Declining balance depreciation

Both of these methods

Neither of these methods

4. Which depreciation method results in a constant depreciation amount taken each period?

Straight line depreciation

Declining balance depreciation

Both of these methods

Neither of these methods

Give explanations to your answers.

Answer 1

1. Straight Line Depreciation Method:

Example: Asset Cost is 100000 $, Useful life is 4 years, Salvage value is 20000$

Depreciable cost = 100000$ -20000$ / 4 = 20000$

2.  Straight Line Depreciation Method:

Taking above example in straight line depreciation will remain same as of 20000$ for all useful life of 4 years but in case of diminshing balance method depreciation will be declining as it is calculated on diminshing balance method. As the value of asset reduces so, depreciation expense will also reduce accordingly.

3. Both ( Straight Line and Diminishing Balance Method) Both methods are acceptable for book keeping.

4. Straight Line Method:

Example: Asset Cost is 100000 $, Useful life is 4 years, Salvage value is 20000$

Depreciable cost = 100000$ -20000$ / 4 = 20000$

Here Depreciation will be 20000$ per year till its useful life.