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Question

Refer to the following information to answer the next 4 questions (Q15 to Q18) Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. Tangible assets, such as machinery, vehicles, buildings, and equipment, gradually lose their value over time due to factors such as wear and tear, obsolescence, or technological advancements. Depreciation reflects this decrease in value and helps businesses accurately represent the true cost of using an asset in their financial statements. There are various methods of calculating depreciation, each method has its own set of rules and assumptions, and the choice of method often depends on factors such as the nature of the asset and its expected pattern of use. Depreciation is a crucial concept in accounting that helps businesses accurately account for the wear and tear of tangible assets, ensuring that financial statements provide a more realistic picture of the costs associated with using these assets over their useful lives.

Which method is a common accounting method of depreciation wherein an asset’s value depreciates at twice the rate it would under straight-line depreciation?

A Sum of years digit Correct Answer Incorrect Answer
B Units of production Correct Answer Incorrect Answer
C Declining Balance Correct Answer Incorrect Answer
D Double Decline Balance Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

The double declining balance (DDB) depreciation method is an approach to accounting that involves depreciating certain assets at twice the rate outlined under straight-line depreciation. This results in depreciation being the highest in the first year of ownership and declining over time. Given the nature of the DDB depreciation method, it is best reserved for assets that depreciate rapidly in the first several years of ownership, such as cars and heavy equipment.

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