4. Switching Between Different Depreciation Methods

Try these first

1. 1.

   What is depreciation?

   Hint

   Think about how businesses expense their assets over time.

2. 2.

   What does DDB stand for in depreciation?

   Hint

   It's a method that allows quick expensing of an asset.

3. 3.

   What is the primary reason for switching from DDB to Straight-Line?

   • To comply with tax laws
   • To increase expenses
   • To avoid reporting book value below salvage value

   Hint

   Think about the outcomes of each method on financial reports.

4. 4.

   True or False: Switching depreciation methods is uncommon in accounting.

   • True
   • False

   Hint

   Consider industry practices in asset management.

5. 5.

   A company purchased equipment for $50,000 with a salvage value of$5,000 and a useful life of 10 years. They initially used the DDB method, which led to a depreciation of $8,000 in the first year. How much depreciation should be reported if they switch to Straight-Line after the second year?

   Hint

   Calculate total depreciation first, then adjust for the years used.

6. 6.

   If an asset with an initial cost of $100,000, salvage of$15,000, depreciates normally under DDB, but switches to Straight-Line after 4 years due to book value reaching below salvage value, compute the values at the end of 4 years and determine the necessary adjustments needed when switching methods.

   Hint

   Use the built data year by year to determine if switching is necessary.