Each of the statements appearing below is descriptive of one or more of the foll

Question

Each of the statements appearing below is descriptive of one or more of the following depreciation methods. Create a list numbered 1 – 5 and place the Roman Numeral(s) belonging to the method(s) to which the statement best applies. A method could be used once, more than once or not at all.

I. Component

II. Declining-balance

III. Straight-line

IV. Sum-of-the-years'-digits

V. Units-of-production

1. The depreciation charged by this method decreases by the same amount each year. _____

2. This method is used if each part of a plant asset is significant to the asset's total cost. _____

3. The method allocates larger shares of the cost of a plant asset to expense during the years in which the greatest use is made of the asset. _____

4. The method always allocates larger shares of the cost of a plant asset to expense during the earlier years of its life. _____

5. Once the depreciable base, residual value, and life of a plant asset are determined, the annual charges to operations under this method will be the same.-----

Explanation / Answer

1. The depreciation charged by this method decreases by the same amount each year In the sum of the digit method depreciation charged by this method decreases by the same amount each year Answer = Option 4 = Sum-of-the-years'-digits 2. This method is used if each part of a plant asset is significant to the asset's total cost. Method in which the parts or sections of a property are individually depreciated at different rates is called Component Depreciation Answer = Option 1 = Component 3. The method allocates larger shares of the cost of a plant asset to expense during the years in which the greatest use is made of the asset in the units of production method, in the year more production more depreciation is charged and in the year of less production less depreciation is charged. Answer = Option 5 = Units-of-production 4. The method always allocates larger shares of the cost of a plant asset to expense during the earlier years of its life. In the declining Balance method, earlier year depreciation is charged more and in the later year less depreciation is charged Answer = Option 2 = Declining Balance 5. Once the depreciable base, residual value, and life of a plant asset are determined, the annual charges to operations under this method will be the same In the Straight line depreciation, residula value is deducted from the purchase value and balance amount will be distributed in equally in all years. Answer = Option 3 = Straight Line

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