Accelerated Depreciation Methods

Question 1

What depreciation method does not use salvage value?

Answer 1

Double Declining Balance

Question 2

How is the double declining balance rate calculated for depreciation?

Answer 2

1. )Straight line rate (number of years divided into 1) i.e., if 5 years, 1/5=20%
2. ) Double the straight line rate 20% x 2 = 40%

Question 3

What is the theoretical justification for using an Accelerated Method of Depreciation?

Answer 3

It relates to the matching principle. It is assumed the asset will be more productive in the earlier years.
Another justification is obsolescence. Assets subject to obsolescence will provide most of their benefits early in life.

Question 4

How is the Sum of the Years’ Digits method Depreciation caclculated?

Answer 4

Year 1 = (N/SYD)(Cost-Salvage Value)
Year 2=((N-1)/SYD)(Cost-Salvage Value))

SYD for 5 year example = 1+2+3+4+5=15
N=Useful Life

Question 5

When does double declining balance switch to straight line?

Answer 5

In the year that total depreciation expense exceeds depreciable cost. Each year A/D must be checked to ensure that BV does not fall below salvage value

Question 6

How is the depreciation calculated under Double Declining Balance Method?

Answer 6

Year 1 = Cost(2/N)
Year 2 = (Cost-depreciation in year 1)(2/N)

150% uses 1.5/N

Question 7

What depreciation method is used for group/composite assets?

Answer 7

Straight line method to groups rather than individual assets. A/D records are not maintained by asset, rather a control account is used to A/D

Question 8

When is the inventory method of depreciation used?

Answer 8

When the inventory items are smaller homogeneous groups of assets and individual records for the assets are not maintained