Question

A principal objection to the straight-line method of depreciation is that it assumes that the asset's economic usefulness is the same each year?

1) gives smaller periodic write-offs than decreasing charge methods
2) provides for the declining productivity of an aging asset
3) assumes that the asset's economic usefulness is the same each year
4) tends to result in a constant rate of return on a diminishing investment base

Answer 1

The straight-line method of depreciation assumes that an asset's economic usefulness is the same each year. However, there are objections to this method, including smaller write-offs, declining productivity of aging assets, and a constant rate of return on a diminishing investment base.

Step-by-step explanation:

The straight-line method of depreciation assumes that an asset's economic usefulness is the same each year. This means that the depreciation expense is allocated evenly over the useful life of the asset. However, there are some objections to this method:

1. Gives smaller periodic write-offs than decreasing charge methods: Other depreciation methods, such as the declining balance method, may provide larger depreciation write-offs in the earlier years of an asset's life, which can be beneficial for tax purposes or reflecting the asset's actual decline in value.
2. Provides for the declining productivity of an aging asset: The straight-line method does not take into account the fact that an asset may become less productive or efficient over time, resulting in lower economic usefulness and value.
3. Tends to result in a constant rate of return on a diminishing investment base: As the asset's value decreases over time, the straight-line method may not accurately reflect the actual return on investment, leading to a constant rate of return on a diminishing investment base.