Question

Which of the following is correct about the comparison of straight-line and accelerated depreciation method?

a. Straight-line depreciation method accelerates expense recognition in early years of an asset's life.

b. Aggressive managers tend to use straight-line depreciation method in early years of an asset's life.

c. Accelerated depreciation method accelerates revenue recognition in early years of an asset's life.

d. Accelerated depreciation method increases current earnings in early years of an asset's life.

e. Both C and D.

Answer 1

In straight-line depreciation equal amount is depreciated throughout the useful life of asset and deprecation amount per year = (Asset’s cost – salvage value of asset at the end of its life)/useful life of the asset.

In the accelerated depreciation method is more deductions are allowed at initial years of asset’s use and it get reduced for passing years as it is assumed that asset is more efficient in its initial periods and it is capable of generating more revenue.

Therefore correct statement about the comparison of straight-line and accelerated depreciation method is accelerated depreciation method accelerates revenue recognition in early years of an asset's life.

Therefore correct answer is option c. Accelerated depreciation method accelerates revenue recognition in early years of an asset's life.

All other statements are wrong because -

• Straight-line depreciation method expense recognition is equal throughout an asset's life.
• Aggressive managers tend to use accelerated depreciation method in early years of an asset's life.
• Accelerated depreciation method decreases current earnings in early years of an asset's life.