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Difficulty: MediumDepreciation Methods and Calculations

Match each depreciation method with its corresponding operational description or formula basis.

  • Straight-Line MethodCharges an equal amount of depreciation expense in each full year of an asset's useful life.
  • Reducing Balance MethodApplies a fixed percentage rate to the carrying amount (net book value) of the asset at the start of each period.
  • Revaluation MethodDetermines annual depreciation by subtracting the year-end value of small assets from their opening value plus additions.
  • Sum-of-the-Years'-Digits MethodMultiplies the depreciable cost by a decreasing fraction based on the remaining useful life digit.

Answer

Straight-Line Method matches equal annual charge; Reducing Balance Method matches applying a fixed percentage to net book value; Revaluation Method matches opening value plus purchases minus closing value for small assets; Sum-of-the-Years'-Digits Method matches multiplying depreciable cost by a decreasing fraction.
Each depreciation method targets specific operational patterns: Straight-line provides uniform yearly expense; Reducing balance applies a fixed percentage to decreasing net book value; Revaluation measures differences in physical asset inventories like loose tools; Sum-of-the-years'-digits uses a digit fraction to accelerate depreciation.

Step-by-Step Solution

1
Analyze the core characteristic of the Straight-Line Method
Identified as charging an equal annual depreciation expense across the useful life.
Straight-line depreciation assumes uniform utilization of the asset over time.
2
Analyze the core characteristic of the Reducing Balance Method
Identified as applying a fixed percentage to the reducing net book value.
This accelerated method calculates depreciation on carrying value rather than original cost.
3
Analyze the core characteristic of the Revaluation Method
Identified as comparing opening inventory of small assets plus additions against closing valuation.
Loose tools and small equipment are difficult to track individually, so periodic valuation is applied.
4
Analyze the core characteristic of the Sum-of-the-Years'-Digits Method
Identified as applying a fraction of remaining useful life divided by the sum of digits to depreciable cost.
This is an accelerated depreciation formula based on a fraction that decreases each year.

Key Concept

Depreciation Calculation Methods and Definitions
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Topics

Depreciation Methods and Calculations

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