Future Business Leaders of America (FBLA) Accounting Practice Test

What is the primary focus of accelerated depreciation methods?

1. To decrease the maintenance cost of assets

2. To record higher depreciation expenses in later years

3. To record higher depreciation expenses in initial years

4. To determine the fair market value of assets

The correct answer is: To record higher depreciation expenses in initial years

Accelerated depreciation methods are designed to recognize higher depreciation expenses in the early years of an asset's useful life. This approach reflects the idea that many assets lose value more quickly immediately after they are acquired, especially in the early stages of use when they may be more productive or in a better condition than later on. By recording higher depreciation expenses initially, businesses can reduce their taxable income during those early years, leading to potential tax benefits. This strategy can aid in cash flow management, as companies often pay less in taxes when the asset's depreciation is higher upfront. Additionally, this method aligns the expense recognition with the higher rate of economic benefit received from the asset during its initial years of operation. This concept contrasts with other methods that might distribute depreciation evenly over an asset's useful life or recognize it more heavily in later years, which would not align with the rationale behind accelerated depreciation.