A plant asset with a five-year estimated useful life and no residual value is sold at the end of the second year of its useful life. How would using the sum-of-the-years'-digits method of depreciation instead of the double-declining balance method of depreciation affect a gain or loss on the sale of the plant asset?

Question

Alayna Scott

Business

13 November, 15:51

A plant asset with a five-year estimated useful life and no residual value is sold at the end of the second year of its useful life. How would using the sum-of-the-years'-digits method of depreciation instead of the double-declining balance method of depreciation affect a gain or loss on the sale of the plant asset?

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Bernard · Answer 1

In the sold we are goint to have a lower gain.

Explanation:

It definitely affects the value of the asset by the end of year two.

If we use the Sum-of-the-years-digits Depreciation method by year two the Accumulated depreciation will be higher than using the double-declining balance method.

In that order if we use the Sum-of-the-years-digits Depreciation method we are going to have a lower gain since the book value of our asset is higher.