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Detailed Explanation needed. Advantages and Disadvantages of methods of depreciation ( Straight Line, Double Declining, Units of production )

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 9Q: Explain the difference between depreciation, depletion, and amortization.

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Advantages and Disadvantages of methods of depreciation ( Straight Line, Double Declining, Units of production )

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

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Characteristics of Depreciation Methods Below is a common list of depreciation methods and characteristics related to depreciation. Depreciation Methods a. Straight-line depreciation method b. Declining balance depreciation method c. Units-of-production depreciation method when actual units produced increases over the life of the asset Characteristics 1. Results in depreciation expense that decreases over the life of the asset. 2. Results in depreciation expense that increases over the life of the asset. 3. Allocates the same amount of cost to each period of a depreciable assets life. 4. Calculated by multiplying a constant depreciation rate by depreciable cost. 5. Calculated by applying a constant depreciation rate to the assets book value at the beginning of the period. 6. Results in lowest income taxes in early years of the assets life. 7. Consistent with the matching principle. Required: Match one or more of the depreciation methods with each characteristic.
Explain the difference between depreciation, depletion, and amortization.
What is a relevant cost? Explain why depreciation on an existing asset is always irrelevant.
Explain straight-line, units-of-production, and double-declining-balance depreciation. When is it appropriate to use each of these depreciation methods?
Please explain double-declining method depreciation. When is this the preferred method to figure depreciation?
Explain the concept of depreciation and different methods used to calculate and record it, including straight-line, declining balance, and units-of-production methods.
Which of the following depreciation methods most closely approximates the method used to deplete the cost of natural resource? a. Straight-line method b. Double-declining-balance method c. Either the cost model or the revaluation model d. The recoverable amount model
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Explain what complications might arise in trying to compare the results of straight-line depreciation and double-declining balance method
Which of the following depreciation methods will result in the most depreciation expense over the life of an asset? Select one: a. Double-declining balance method b. All three methods will result in the same amount of depreciation expense. c. Units-of-production method d. Straight-line method e. Cannot be determined from the information given.
What are some factors that could explain the predominant use of the straight-line depreciation method?
Depreciation plays an important role in determining bottom line figure.Discuss and list two criteria that are expected to affect the amount of depreciation and how the criteria can affect depreciation amount(With relevane examples)