Selecting a Depreciation Method
Lesson:
Depreciation methods vary in terms of how quickly they start estimating the decrease in an asset's worth.
- Straight-line depreciation estimates decline in value evenly across each year of ownership.
- Accelerated depreciation estimates declines as larger early on and more slowly toward the end of owernship.
You're an accountant, trying to figure out which type of depreciation would be optimal.
This is what you've been told:
- A private company unconcerned with public market perceptions prioritizes tax minimization over reported earnings.
What general type of depreciation should be selected in this situation?
Answer:
- Accelerated depreciation (like double declining balance or sum-of-years)
Explanation:
-
Accelerated depreciation estimates declines as larger early on and more slowly toward the end of owernship.