Use of Straight-Line Depreciation in Comparison to the Diminishing-Balance Method

question 43

Multiple Choice

Use of straight-line depreciation in comparison to the diminishing-balance method results in
1) a greater amount of depreciation in the earlier years of an asset's useful life.
2) a greater amount of depreciation in the later years of an asset's useful life.
3) an equal amount of depreciation over an asset's total useful life.

• A) 1.
• B) 2.
• C) 3.
• D) both 2 and 3.

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Definitions:

Accounting Costs

The actual expenses and cash outflows that a business incurs, captured in its financial records.

Implicit Costs

The opportunity costs of using resources owned by the firm for its current purposes rather than the next best alternative uses.

Accounting Profits

Accounting profits refer to the net earnings of a company as calculated by subtracting total expenses from total revenues, using standard accounting principles.

Economic Profits

The difference between total revenues and total costs, including both explicit and implicit costs, indicating the profitability of a company beyond basic accounting measures.