Switching between different depreciation methods: - Switching from one depreciation method to another is done to accelerate the depreciation of book value of the asset and thus to have tax benefits. Switching is generally done when depreciation amount for a given year by the currently used method is less than that by the new method. The most commonly used switch is from double declining balance (DDB) method to straight-line (SL) method. In double declining balance method, the book value never reaches zero. In addition, the calculated book value at the end of useful life does not match with the salvage value. Switching from double-declining balance method to straight-line method ensures that the book value does not fall below the estimated salvage value of the asset. A. Identify why the switching is desired in the above case study. B. How an amount is generated from Sinking Fund Method.

Switching between different depreciation methods: - Switching from one depreciation method to another is done to accelerate the depreciation of book value of the asset and thus to have tax benefits. Switching is generally done when depreciation amount for a given year by the currently used method is less than that by the new method. The most commonly used switch is from double declining balance (DDB) method to straight-line (SL) method. In double declining balance method, the book value never reaches zero. In addition, the calculated book value at the end of useful life does not match with the salvage value. Switching from double-declining balance method to straight-line method ensures that the book value does not fall below the estimated salvage value of the asset. A. Identify why the switching is desired in the above case study. B. How an amount is generated from Sinking Fund Method.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Switching between different depreciation methods: - Switching from one depreciation method to
another is done to accelerate the depreciation of book value of the asset and thus to have tax benefits.
Switching is generally done when depreciation amount for a given year by the currently used method
is less than that by the new method. The most commonly used switch is from double declining balance
(DDB) method to straight-line (SL) method. In double declining balance method, the book value never
reaches zero. In addition, the calculated book value at the end of useful life does not match with the
salvage value. Switching from double-declining balance method to straight-line method ensures that
the book value does not fall below the estimated salvage value of the asset.
A. Identify why the switching is desired in the above case study.
B. How an amount is generated from Sinking Fund Method.

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