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I came across this interesting question:
“In the event that the pattern of usage of a non-current asset cannot be determined (or is unknown, what method should be used to depreciate the asset?” (Or words to that effect)
The options were:
A Straight-line method
B Reducing Balance
C Sum-of-Digits
D Any methodI thought the answer should be C (Sum-of-digits) but… the correct answer is given as A ie Striaght-line method with the explanation that: the asset is depreciated over its useful life.
That’s all well and good – but why not C?
The accounting standards allow any of the methods, but both reducing balance and sum of the digits methods assume that the usage is more in earlier years and less in later years.
Oh so if the pattern of usage is unknown, we go with using the economic/useful life of the asset? (Considering straight-line method assumes even consumption of asset over the years.)
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