Atwater Manufacturing Company purchased a new machine especially built to perform one particular function on the assembly line. A difference of opinion has arisen as to the method of depreciation to be used in connection with this machine. Three methods are now being considered.
(a) The straight-line method
(b) The productive-output method
(c) The sum-of-the-year's digits method
List separately the arguments for and against each of the proposed methods from both the theoretical and practical viewpoints.
The straight-line method of depreciation is good when sales and earnings are expected to be level or when ease of use is desired. When using this method, the machine would depreciate an equal amount each year over its useful life. The pros of this method include its ease of use and the fact that the benefits of the machine (via level depreciation amounts) are spread evenly across years. The cons of this method include the fact that in times of increasing sales and earnings (which is what every business expects every year), the ...
Three depreciation methods for new equipment are described as Atwater Manufacturing has purchased new machinery.