Company A uses an accelerated depreciation method while Company B uses the straight-line method.All other things being equal,during the first few years of the asset's use,Company B will show which of the following compared to Company A?
A)A smaller fixed asset turnover ratio and a smaller gain on asset disposal.
B)A larger fixed asset turnover ratio and a larger gain on asset disposal.
C)A smaller fixed asset turnover ratio and a larger gain on asset disposal.
D)A larger fixed asset turnover ratio and a smaller gain on asset disposal.

Question

Quizplus · Accepted Answer

During the first few years of an asset's life,an accelerated depreciation method will result in a higher accumulated depreciation and a lower net fixed asset amount as compared to the straight-line method.Since Company B is using the straight-line method,it will have a smaller fixed asset turnover.Company B's carrying value of the asset would be higher than Company A,so Company B would show a smaller gain on asset disposal.

Company a Uses an Accelerated Depreciation Method While Company B