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Multiple Choice
Which depreciation method will compute the most total depreciation expense over the life of an asset?
A
Straight-line method
B
Double-declining balance method
C
Units-of-production method
D
All methods result in the same total depreciation expense
Verified step by step guidance
1
Understand the concept of depreciation: Depreciation is the allocation of the cost of a tangible asset over its useful life. The total depreciation expense over the life of the asset is equal to the asset's cost minus its salvage value, regardless of the method used.
Review the Straight-line method: This method spreads the depreciation expense evenly over the useful life of the asset. The formula is: \( \text{Depreciation Expense} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}} \).
Examine the Double-declining balance method: This is an accelerated depreciation method that applies a higher depreciation expense in the early years of the asset's life. The formula is: \( \text{Depreciation Expense} = 2 \times \text{Straight-line Rate} \times \text{Book Value at Beginning of Year} \).
Analyze the Units-of-production method: This method calculates depreciation based on the asset's usage or production. The formula is: \( \text{Depreciation Expense} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Total Estimated Units}} \times \text{Units Produced During the Year} \).
Conclude that all methods result in the same total depreciation expense: While the timing of the expense differs across methods, the total depreciation over the asset's life will always equal \( \text{Cost} - \text{Salvage Value} \), regardless of the method chosen.