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CA Foundation · Accounting · Depreciation and Amortisation

Under the straight-line method of depreciation, what is the key assumption about the asset's consumption of economic benefits?

The straight-line method is based on the assumption that an asset's economic benefits are consumed equally in each accounting period throughout its useful life, resulting in constant annual depreciation expense.

  1. AEconomic benefits are consumed equally over the asset's useful lifeCorrect
  2. BEconomic benefits decline faster in early years and slower in later years
  3. CEconomic benefits are consumed only when the asset is actively used
  4. DEconomic benefits remain constant regardless of usage intensity

Explanation

The straight-line method assumes uniform consumption of economic benefits across each period of the asset's useful life. This is why depreciation expense remains constant year after year. The reducing balance method (option B) assumes faster consumption early on, while options C and D are incorrect interpretations of depreciation principles.

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