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Should firms be able to select their depreciation methods?

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Should entities have discretion to choose the depreciation method and useful lives applicable to various asset classes?
What do you think would affect the useful lives of assets such as aircraft?

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Solution Summary

This discussion gives the pros and cons of permitting firms to choose a depreciation method, but suggests that they should not have this choice. It suggests that firms must choose useful life and explains why. It then discusses the airline industry as a particular example. Discussion is about 400 words and no references.

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So, this question has two issues...selecting a method and selecting a useful life. The method chosen will alter the rate of speed of the expense. Straight-line method gives even expense over the life. Accelerated methods, like double-declining method, start out with a high expense, and it gets decreases over the life.

So, the question asks, "should" entities be allowed to choose their own? "Should" is a value judgment. What might happen if they could? Would they abuse the privilege and "manage earnings" and mislead owners and stakeholders? Or, might they be better able to match the method with the actual asset (one that ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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