Question

What is the major objection to the straight-line method?

1) It assumes the asset's economic usefulness and repair expense are the same each year.
2) It does not consider the asset's economic usefulness and repair expense.
3) It assumes the asset's economic usefulness and repair expense are different each year.
4) It does not account for the asset's depreciation.

Answer 1

The major objection to the straight-line method of depreciation is that it does not account for the asset's depreciation over time.

Step-by-step explanation:

The major objection to the straight-line method of depreciation is that it does not account for the asset's depreciation over time. The straight-line method assumes that the asset depreciates at a constant rate, which may not accurately reflect the actual depreciation of the asset.

For example:

Let's say a company purchased a machine for $10,000 and expects it to have a useful life of 5 years with no salvage value. Under the straight-line method, the company would depreciate the machine by $2,000 per year for 5 years. However, the actual depreciation of the machine may vary. It is possible that the machine could depreciate more quickly in the early years and less quickly in the later years.

By using the straight-line method, the company may overstate or understate the value of the asset on its financial statements. This could mislead investors and other stakeholders in evaluating the financial health of the company.