Question

Use of the double-declining balance method

a. results in a decreasing charge to depreciation expense.
b. means residual value is not deducted in computing the depreciation base.
c. means the book value should not be reduced below residual value.
d. All of these answer choices are correct.

Answer 1

The double-declining balance method results in a decreasing depreciation expense, does not consider residual value in the depreciation base, and ensures that book value does not fall below the residual value. The correct option is A.

Step-by-step explanation:

The use of the double-declining balance method of depreciation involves a few key concepts. Firstly, it results in a decreasing charge to depreciation expense over time because the method applies a constant rate to the declining book value of the asset each year.

Secondly, the method does not deduct the residual value when computing the depreciation base; the entire cost of the asset is subject to depreciation. However, it is important that the book value is not reduced below the estimated residual value at the end of the asset's useful life.

To ensure this, depreciation expense may need to be adjusted in the final year(s) of the asset's life.