Accounting Online Program Certification Practice Test

What is the depreciation method used by Yvette on the purchased plant?

1. Double declining balance

2. Straight-line

3. Units of production

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

The correct answer is: Straight-line

The straight-line depreciation method is used to allocate the cost of an asset evenly over its useful life. This method is straightforward and popular because it simplifies the accounting process, allowing for a consistent and predictable yearly expense. Each year, the same amount of depreciation is deducted from the asset's book value, which is determined by subtracting the asset's salvage value from its purchase cost and dividing that amount by its useful life in years. In a scenario where Yvette is applying the straight-line method, it indicates she prefers a stable expense approach rather than fluctuations in depreciation charges. This might align well with her financial reporting strategy, as it provides a clear view of asset expenses without the complexities associated with other depreciation methods like double declining balance or sum-of-the-years'-digits, which create variations in expense allocation throughout the asset's life.