There are four depreciation methods to consider: straight-line, double declining balance, units of production, and sum-of-the-years-digits. Each method has its own approach and advantages. Straight-line depreciation allocates equal amounts of depreciation each year, double declining balance depreciates faster in earlier years, units of production allocates based on actual usage, and sum-of-the-years-digits depreciates more in earlier years.
The subject of this question is Business.
To determine the best depreciation method for the truck, we need to consider its estimated useful life and the depreciation method that is most appropriate for the company's needs.
A. Straight-line depreciation: This method allocates an equal amount of depreciation expense each year over the useful life of the truck. For example, if the estimated useful life is 5 years, the annual depreciation expense would be $15,000 ($75,000 / 5 years).
B. Double declining balance depreciation: This method allocates a higher depreciation expense in the earlier years of the truck's life and a lower expense in the later years. The depreciation rate is typically double the straight-line rate. For example, if the straight-line rate is 20%, the double declining balance rate would be 40%.
C. Units of production depreciation: This method allocates depreciation based on the actual usage of the truck, such as miles driven. For example, if the estimated useful life is 100,000 miles, and the truck is driven 10,000 miles in a year, the depreciation expense for that year would be $7,500 ($75,000 / 100,000 miles * 10,000 miles).
D. Sum-of-the-years-digits depreciation: This method allocates a higher depreciation expense in the earlier years and a lower expense in the later years, based on a predetermined formula using the sum of the digits of the useful life. This method allows for more depreciation expense in the earlier years. For example, if the useful life is 5 years, the sum of the digits is 1 + 2 + 3 + 4 + 5 = 15. In the first year, the depreciation expense would be $15,000 (1/15 of $75,000), in the second year it would be $12,000 (2/15 of $75,000), and so on.