Question

Each year a company has been investing an increasingly greater amount in machinery. Since there is a large number of small items with relatively similar useful lives, the company has been applying straight-line depreciation at a uniform rate to the machinery as a group. The ratio of this group's total accumulated depreciation to the total cost of the machinery has been steadily increasing and now stands at .75 to 1.00. The most likely explanation for this increasing ratio is:

a. Rapid Technological Advances
b. Extended Useful Lives of Machinery
c. Change in Depreciation Policy
d. Decreased Maintenance Expenditure

Answer 1

The most likely explanation for the ratio of accumulated depreciation to total machinery cost increasing is Rapid Technological Advances, which cause older machinery to depreciate faster.

Step-by-step explanation:

The increasing ratio of accumulated depreciation to the total cost of machinery in a company that has been investing an increasingly greater amount in machinery each year and applying straight-line depreciation is most likely explained by Rapid Technological Advances. This is because as newer machinery is brought into use, the older machinery becomes obsolete at a faster rate, and its value declines more quickly, leading to a higher accumulation of depreciation relative to the total cost of the machinery assets. This scenario is consistent with the straight-line method of depreciation, which spreads the cost of the asset evenly over its useful life, and implies that the assets' useful lives are not extending and that there is no change in depreciation policy or a significant decrease in maintenance expenditure.