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 almost always produces the most depreciation expense in the first year?

Double-declining balance method

Units-of-production method

Straight-line method

Sum-of-the-years'-digits 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 exist to calculate depreciation, and each method impacts the amount of expense recognized in the early years versus later years.

Review the Double-Declining Balance Method: This method is an accelerated depreciation method. It calculates depreciation by applying a fixed percentage (double the straight-line rate) to the book value of the asset at the beginning of each year. This results in higher depreciation expense in the early years compared to later years.

Compare the Units-of-Production Method: This method calculates depreciation based on the actual usage or production of the asset. It does not necessarily produce the highest depreciation expense in the first year unless the asset is heavily used initially.

Examine the Straight-Line Method: This method spreads the depreciation expense evenly over the useful life of the asset. It does not produce higher depreciation in the first year, as the expense is consistent year over year.

Analyze the Sum-of-the-Years'-Digits Method: This is another accelerated depreciation method, but it typically produces less depreciation expense in the first year compared to the Double-Declining Balance Method. It uses a fraction based on the sum of the years of the asset's useful life to allocate depreciation.