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?

Units-of-production method

Double-declining balance 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 of depreciation allocate the expense differently over time.

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

Compare the DDB method to other methods: The Straight-Line method spreads the expense evenly over the asset's useful life, while the Units-of-Production method bases depreciation on usage, and the Sum-of-the-Years'-Digits method is another accelerated method but generally less aggressive than DDB.

Analyze why DDB produces the most depreciation in the first year: Since DDB applies a higher rate to the book value (which is highest at the start), it results in the largest depreciation expense in the first year compared to other methods.

Conclude that the Double-Declining Balance method almost always produces the most depreciation expense in the first year due to its accelerated nature and the application of a higher rate to the initial book value.