4.1. When to Switch Between Methods

Try these first

1. 1.

   What is depreciation?

   Hint

   Think about how wear and tear affects equipment.

2. 2.

   What is salvage value?

   Hint

   Consider what an asset might sell for after it’s been used.

3. 3.

   What is the main reason companies might switch depreciation methods?

   • To increase expenses
   • To comply with tax laws
   • To avoid loss on salvage value

   Hint

   Think about the risks of depreciation strategies.

4. 4.

   True or False: The Straight-Line method always provides higher annual depreciation than the DDB method.

   • True
   • False

   Hint

   Consider what happens to depreciation over time.

5. 5.

   An asset costs ₹10,000, has a salvage value of ₹2,000, and is expected to last 5 years. Determine the first year's depreciation using both DDB and Straight-Line methods and decide which to use.

   Hint

   Calculate both methods and compare them.

6. 6.

   If an asset initially worth ₹50,000 depreciates at DDB, and its book value reaches ₹25,000, but the salvage value is ₹30,000, explain the implications.

   Hint

   Think about the need to maintain the salvage value in financial reports.