Highland Corporation Has Always Used Double-Declining Balance Depreciation for Its

question 91

Essay

Highland Corporation has always used double-declining balance depreciation for its equipment. Beginning in 2018, the company has decided to use straight-line depreciation for all new equipment purchases. How should the company report this decision? Describe any journal entries and disclosures that need to be made for this change.

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Definitions:

Average Rate of Return

A financial ratio that represents the average net profit or return expected on an investment over its lifetime, expressed as a percentage.

Straight-Line Depreciation

A method of calculating the depreciation of an asset, dividing its cost minus salvage value by its useful life, resulting in equal annual depreciation expenses.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment or project, calculating the difference between the present value of cash inflows and outflows.

Present Value Index

A calculation that compares the present value of cash inflows to the initial investment, often used in capital budgeting.