Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

8. Long Lived Assets

Depreciation: Summary of Main Methods

Financial Accounting

8. Long Lived Assets

Depreciation: Summary of Main Methods

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Multiple Choice

Which depreciation method results in the highest depreciation expense in the first year of an asset's life?

Double-declining balance method

Sum-of-the-years'-digits method

Straight-line method

Units-of-production method

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Verified step by step guidance

Understand the concept of depreciation: Depreciation is the allocation of the cost of a tangible asset over its useful life. Different methods of depreciation result in varying expense amounts over time.

Review the Double-Declining Balance Method: This is an accelerated depreciation method that applies a higher depreciation rate in the early years of an asset's life. The formula is: \( ext{Depreciation Expense} = 2 imes ext{Straight-Line Depreciation Rate} imes ext{Book Value at Beginning of Year} \).

Examine the Sum-of-the-Years'-Digits Method: This method also accelerates depreciation but uses a fraction based on the sum of the years of the asset's useful life. The formula is: \( ext{Depreciation Expense} = rac{ ext{Remaining Life of Asset}}{ ext{Sum of Years}} imes ext{Depreciable Base} \).

Understand the Straight-Line Method: This method spreads the depreciation evenly over the asset's useful life. The formula is: \( ext{Depreciation Expense} = rac{ ext{Cost of Asset} - ext{Salvage Value}}{ ext{Useful Life}} \).

Review the Units-of-Production Method: This method bases depreciation on the actual usage or production of the asset. The formula is: \( ext{Depreciation Expense} = rac{ ext{Units Produced}}{ ext{Total Estimated Units}} imes ext{Depreciable Base} \). Compare these methods to determine which results in the highest depreciation expense in the first year.