A10-4 Depreciation or Amortization Policy:

The methods of depreciation or amortization demonstrated in the chapter include the following:

1. Straight-line

2. Productive-output

3. Declining-balance

Required:

Indicate the likely choice of depreciation or amortization method expected under each of the following circumstances:

1. The company has land as an asset. There is also an asset called land site restoration costs, which is an asset retirement obligation; the site restoration is expected to be completed in 10 years.

2. The company is a mining company and assets to be depreciated are mine exploration and evaluation costs.

3. The company has a number of intangible assets with a limited life span.

4. The company wishes to portray stable income and expense patterns over time.

5. The company has a backup transformer that is installed and ready to use, even though it may never be brought into operation.

6. The company wants to minimize bookkeeping costs by keeping allocation methods simple.

7. The company expects to use the asset heavily in initial years and less as it grows older.

8. The company expects to use the asset sporadically, but the asset will not wear out unless used.

9. Technological obsolescence is a significant factor in estimating the useful life of the asset.

10. The company wants to minimize its deferred tax liability balances.

11. The company is a subsidiary of a parent that uses straight-line depreciation.