3.1. Depreciation Estimates Comparison

Try these first

1. 1.

   What is depreciation?

   Hint

   Think about how assets lose value.

2. 2.

   What does salvage value mean?

   Hint

   Consider what you would get after disposing of an asset.

3. 3.

   What is the primary benefit of using the Double Declining Balance method?

   • Lower overall depreciation
   • Higher early depreciation
   • Consistent annual depreciation

   Hint

   Consider which method gives more upfront financial benefit.

4. 4.

   True or False: The Sum of the Years' Digits method ignores the salvage value in calculations.

   • True
   • False

   Hint

   Think about how calculations are conventionally made.

5. 5.

   A company purchases machinery worth ₹1,000,000 with a salvage value of ₹100,000 and a useful life of 10 years. Calculate the depreciation for the third year using both SYD and DDB methods.

   Hint

   Calculate book values carefully for accurate DDB values.

6. 6.

   Given a machine with an initial cost of ₹1,500,000 and a salvage value of ₹150,000, switching from DDB method to straight line after year 4 because it depreciated too fast, explain the impact on financial statements.

   Hint

   Consider how switching methods affects overall asset valuation.