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Methods of Depreciation - Choosing the Correct Method

There are various methods of asset depreciation. The methods of depreciation include the straight-line method, units-of-production method, and double-declining balance method.

Consider the methods of depreciation and respond to the following:
What are the various points or factors you would consider while choosing a method of depreciation for plant and equipment of an electricity company? Explain with examples.

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Solution Preview

The most common forms of depreciation are listed. The straight-line method is not used commonly. It is used when required by the IRS as the depreciation method. Real estate must be depreciated under straight line because it is considered real property. The units of production method is most often used by manufacturing facilities when depreciating equipment. This is because the machine loses value the more it is used. The double declining balance method is used for an asset that has a ...

Solution Summary

This solution discusses methods of depreciation and uses the example of an electric company. Additional resources are provided for student expansion.