Discussion
Put these methods in order of decreasing first-year charge, for an asset with a 5-year life and zero salvage.
1. Straight line 2. Double declining balance 3. Sum of years digits
Answer: A
Correct answer: 2, 3, 1
For a five-year asset with no salvage, double declining balance takes 40 per cent of the cost in the first year, sum of years digits takes 5/15 or 33.3 per cent, and straight line takes 20 per cent. The order is the same for any life, since the double declining rate is always twice the straight line rate and the sum of years digits fraction always falls between them.
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