Q 11.5: You are comparing two graphs, each of which plots depreciation expense o

Question

Q 11.5: You are comparing two graphs, each of which plots depreciation expense on its vertical axis (y-axis) and time on its horizontal axis (x-axis). Graph A shows an asset that is depreciated using the declining-balance method, while Graph B shows an asset that is depreciated using straight-line method. Assuming both graphs depict linear relationships, which of the following would you expect to observe? A : On Graph A, the line plotting depreciation expense will slope up to the right, while on Graph B, the line will be perfectly vertical. B : On Graph A, the line plotting depreciation will be perfectly horizontal, while on Graph B, the line will slope down to the right. C : On Graph A, the line plotting depreciation expense will be perfectly vertical, while on Graph B, the line will slope up to the right. D : On Graph A, the line plotting depreciation expense will slope down to the right, while on Graph B, the line will be perfectly horizontal.

Explanation / Answer

In this answer would be Option ( D) in which Graph A , the line plotting depreciation exp will slope down to the right while on Graph B the line will be perfectly horizontal .

As deperciation amount in Graph A will be reduced as it is being caluclated on declining balance i.e $100 assest purchased & deperciation rate is 10 % .

First Year depericiation amount is = 100 * 10% = $10

Second year deperciation amount = ( 100-10 ) *10 % = $ 9

As deperciation amount in Graph B will not be reduced as it is being caluclated on straight line balance i.e $100 assest purchased & deperciation rate is 10 % .

First Year depericiation amount is = 100 * 10% = $10

Second year deperciation amount = 100 *10 % = $ 10

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