Utah Contractor Practice Exam

Which depreciation method charges depreciation uniformly over the life of an asset?

1. Simple line

2. Straight line

3. Amortization

4. Declining balance

The correct answer is: Straight line

The straight-line method is the depreciation approach that allocates an equal amount of depreciation expense each year over the useful life of an asset. This method is straightforward and widely used because it simplifies the accounting process. Under straight-line depreciation, the cost of the asset is divided by its estimated useful life, resulting in a consistent annual expense that reflects a steady consumption of the asset’s value. This uniform allocation makes it particularly useful for planning and budgeting, as it allows businesses to predict their depreciation expenses accurately over time. Other methods, such as declining balance or amortization, do not distribute the expense evenly throughout the asset’s life, leading to varying annual charges that can complicate financial forecasting.