The forklift has an estimated useful life of 6 years and no salvage value. The business indicates it wants to depreciate the asset evenly over 6 years. Based on the input from the business about wanting to spread the depreciation expense out evenly over the life of the asset, what is the appropriate depreciation method to use?

The forklift has an estimated useful life of 6 years and no salvage value. The business indicates it wants to depreciate the asset evenly over 6 years. Based on the input from the business about wanting to spread the depreciation expense out evenly over the life of the asset, what is the appropriate depreciation method to use?

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

Answer: (A)

When you want depreciation to be the same amount each year, you use straight-line depreciation. This method allocates the asset’s cost evenly over its useful life, using the formula (cost minus salvage value) divided by the useful life. With six years and no salvage value, the annual depreciation is cost divided by 6, so the expense is identical every year. This matches the business’s goal of spreading the expense evenly across the asset’s life. Other methods don’t meet that goal. Double-declining balance front-loads depreciation—more of the cost is recognized in the early years and less later. Units of production ties depreciation to actual usage, causing varying charges depending on how much the asset is used. Sum-of-the-years’ digits is an accelerated method, accelerating more depreciation early on. If the aim is uniform expense each year, straight-line is the best fit. For a concrete sense, if the asset cost 60,000, you’d record 10,000 depreciation each year for six years.

When you want depreciation to be the same amount each year, you use straight-line depreciation. This method allocates the asset’s cost evenly over its useful life, using the formula (cost minus salvage value) divided by the useful life. With six years and no salvage value, the annual depreciation is cost divided by 6, so the expense is identical every year. This matches the business’s goal of spreading the expense evenly across the asset’s life.

Other methods don’t meet that goal. Double-declining balance front-loads depreciation—more of the cost is recognized in the early years and less later. Units of production ties depreciation to actual usage, causing varying charges depending on how much the asset is used. Sum-of-the-years’ digits is an accelerated method, accelerating more depreciation early on. If the aim is uniform expense each year, straight-line is the best fit. For a concrete sense, if the asset cost 60,000, you’d record 10,000 depreciation each year for six years.