5.1. Benefits of Switching Methods

Try these first

1. 1.

   What is the main reason for switching depreciation methods?

   Hint

   Consider why businesses want to accurately reflect asset value.

2. 2.

   List two depreciation methods discussed.

   Hint

   Think of the methods that show different depreciation schedules.

3. 3.

   What is the primary reason companies switch from DDB to SL methods?

   • To increase taxable income
   • To match book value with salvage value
   • To avoid recording depreciation

   Hint

   Focus on the relationship between book value and salvage value.

4. 4.

   True or False: The Straight-Line method will always result in a higher depreciation expense than the Double Declining Balance method.

   • True
   • False

   Hint

   Consider the nature of how each method calculates depreciation over time.

5. 5.

   You have an asset costing $50,000, with a salvage value of$5,000 and a useful life of 10 years. If you’ve been using DDB for 3 years and need to switch to SL, calculate the new depreciation expense for the upcoming year.

   Hint

   Consider the formulas for both methods and adjust your calculations as needed.

6. 6.

   A company has a piece of equipment costing $120,000, with a salvage value of$10,000 and a life of 8 years. After 5 years on DDB, it plans to switch to SL. Calculate how this switch impacts its financials.

   Hint

   Ensure to keep track of all calculations for accurate financial reporting.