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 are explaining depreciation methods to a business owner who needs some help.
Here's what you know:
- A technology company purchasing computer equipment wants to maximize tax deductions early while the equipment has its highest value and lowest obsolescence risk.
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.