rita question straight line depreciation

Submitted by yipst3 on Sat, 11/02/2013 - 16:24
 

hi experts, I found one question from Rita.

Which of the following sequences represents straight line depreciation?

 

A. $100,$100,$100

 

B. $100,$120,$140

 

C. $100,$120,$160

 

D. $160, $140, $120

 

Answer A

 

Explanation

 

Straight line depreciation uses the same amount each time period.

 

Do you feel the question is unclear? what exactly "sequences represents straight line depreciation" means? When I google "Straight line depreciation", some charts(image) shows the decending line. why isn't the answer D? drop 20 in each period. I am afraid to see these unclear question in the real exam.

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manasmorey

Sat, 11/02/2013 - 21:24

Hello friend,

The question is straight forward and clear, probably the term sequence is confusing you. The answer is A and the explanation as per the book is absolutely correct.

When using Straight line depreciation method the Cost of the Asset while calculating the depreciation remains constant every year.

eg:- You buy a car for $10000 with a useful life of 5 years, so with the SLD method when you calculate the depreciation each year you will conisder the Cost of the Asset as $10000 (all 5 years)

Year 1 - 10000 - Scrap Value/ useful life

Year 2 - 10000 - XXX

Year 3 - 10000 - XXX

and so on...

Option D would have been correct for the Declining depreciation method, where the Year 1 depreciation value is subtracted from the original Cost of the asset.

Consider above example of the car -

Assume Year 1 depreciation comes to $1000

Now with declining method the Year 2 depreciation Cost of the Asset will be 10000 - 1000=9000

So year 2 depreciation will be calculated considering the Asset Cost as $9000.

Year 3 Cost of Asset might come to 7500

and so on...

 

If you understand the above  Sequence, the question you posted will make sense..

Hope this help..

Please note I am not PMP certified as yet.

 

 

yipst3

Sun, 11/03/2013 - 03:53

 hi, manasmorey  ,

I am not native english speaker, it really makes me confused.

160.140.120 could be the result of Straight line depreciation

it drops 20 in every period. Maybe I really not understand the term sequence.

manasmorey

Sun, 11/03/2013 - 04:06

160, 140, 120 are not depreciation values they are Cost of the Asset.

So in SLD 100,100,100 (in this case) or cost of the asset will always be same...

 

Hope this helps.

amyg

Thu, 02/06/2014 - 14:03

There is another way to understand depreciation - may be this will help.
in a business lets say you have a printer costing $300 with a life span of 3 years.
after 3 years you would require a new printer. Since printer value is going to be decreased and will approach zero. you do not have resale value for the old printer. YOu just will throw it in trash.

From your revenue you can save some money each year for replacement of your printer after 3 years. So lets say you save equal amount for 3 years.

So that would be
1 year - 100
2 year - 100
3 year - 100

Total of $300 at the end of 3rd year, you can throw old useless printer and get a new one.

see now you saved equal amounts each year. This is called straight line depreciation.

Equal amounts per year = straight line depreciation.