Question

Assume this is the first year an asset is being depreciated. Which method will give an income tax advantage?

A) Straight-line depreciation
B) Double declining balance depreciation
C) Units of production depreciation
D) Sum-of-the-years-digits depreciation

Answer 1

The Double declining balance depreciation method gives an income tax advantage in the first year of asset depreciation. Option B

Step-by-step explanation:

The method that gives an income tax advantage in the first year of asset depreciation is the Double declining balance depreciation method.

This method allows for a larger deduction in the early years of an asset's life, which can help reduce taxable income and therefore lower tax liability. It uses a depreciation rate that is double the straight-line rate, resulting in higher depreciation expenses in the early years.

For example, let's say you have an asset with a useful life of 10 years and a cost of $10,000. With the double declining balance method, you can depreciate 20% of the asset's value in the first year, which would be $2,000. This larger deduction can provide a tax advantage in the form of reduced taxable income. Option B