Straight line method
Sinking fund method
Sum-of-year digit method
Declining balance method
Answer is Right!
Answer is Wrong!
The correct answer is D. Declining balance method.
The declining balance method is a depreciation method in which the depreciation expense is calculated as a fixed percentage of the asset’s book value. The percentage is applied to the book value each year, and the book value is reduced by the depreciation expense. This method results in a higher depreciation expense in the early years of the asset’s life and a lower depreciation expense in the later years.
The declining balance method is often used for assets that have a short useful life, such as computers and automobiles. It is also used for assets that have a high salvage value, such as buildings.
The other methods of computing depreciation are:
- Straight line method: In this method, the depreciation expense is calculated as a fixed amount each year. The amount is equal to the cost of the asset divided by its useful life.
- Sum-of-the-years’ digits method: In this method, the depreciation expense is calculated as a decreasing amount each year. The amount is equal to the sum of the digits of the asset’s useful life divided by the number of years remaining in the asset’s useful life.
- Sinking fund method: In this method, the depreciation expense is calculated as a fixed amount each year. The amount is equal to the amount that would be deposited into a sinking fund each year to accumulate enough money to replace the asset at the end of its useful life.