3.2. Depreciation Accounting Methods

Try these first

1. 1.

   Define depreciation.

   Hint

   Think about the lifespan and cost of the asset.

2. 2.

   What is the straight-line method?

   Hint

   Consider how expenses are spread out.

3. 3.

   Which method allocates equal expense over an asset's useful life?

   • Straight-Line
   • Sum-of-the-Years
   • Double Declining Balance

   Hint

   Consider which method simplifies calculation.

4. 4.

   True or False: The double declining balance method provides uniform depreciation each year.

   • True
   • False

   Hint

   Think about how depreciation changes over time.

5. 5.

   A contractor purchased a crane for $120,000 with a useful life of 10 years and a residual value of$20,000. Calculate the depreciation expense for the first two years using all three methods. Discuss what method might suit a construction project best.

   Hint

   Apply the formulas you've learned for each method.

6. 6.

   Discuss the financial risks associated with using inaccurate depreciation methods in long-term construction projects.

   Hint

   Think about the impact of long-term financial stability when depreciation is mismanaged.