Make 1-2 choices about how to track an asset purchase and see the consequences.
How Should Sarah Track Her Printer?
You have seen the scoreboard and predicted the pattern. Now make a real decision. Sarah needs to choose how to track her $15,000 printer. Her choice will affect her financial statements and how investors see her business.
Sarah has two reasonable choices for tracking her $15,000 printer over 5 years with an estimated salvage value of $1,500:
Choice A: Straight-Line
Depreciate the same amount each year.
Annual depreciation = ($15,000 - $1,500) ÷ 5 = $2,700/year
Effect: Profit is reduced by $2,700 every year. Predictable and simple.
Choice B: Double-Declining Balance
Depreciate more in early years, less in later years.
Year 1: $6,000 | Year 2: $3,600 | Year 3: $2,160...
Effect: Profit takes a bigger hit early on but improves in later years.
In your notebook, answer these questions:
- Which method would you recommend for Sarah? Write one sentence explaining your choice.
- What is the book value after 3 years under each method? Show your work.
- How would each method affect Sarah's reported profit in Year 1?Which method makes profit look better? Which is more honest?
- If Sarah wants to show strong profit to investors in Year 1,which method helps her? Is that a good reason to choose it?
Hint: There is no single "right" answer. Both methods are acceptable under accounting rules. What matters is that you can explain why you chose one over the other and what the consequences are for the financial statements.
| Factor | Straight-Line | Double-Declining |
|---|---|---|
| Year 1 expense | $2,700 | $6,000 |
| Year 1 profit impact | Smaller hit | Bigger hit |
| Year 3 book value | $6,900 | $4,320 |
| Complexity | Simple | More complex |
| Best for assets that... | Lose value evenly | Lose value fast early |
Important: Once Sarah chooses a method, she should use it consistently. Switching methods mid-stream is a red flag for investors because it can look like she is manipulating profit numbers.
This exercise shows why depreciation matters beyond just "doing the math." The method a company chooses affects:
- Reported profit — different methods produce different expense amounts each year
- Tax liability — more depreciation means lower taxable income
- Investor perception — the method signals how management views the asset's useful life
- Book value accuracy — the method should reflect how the asset actually loses value
In the next lessons, you will learn the formal rules for calculating each method, how to record depreciation in financial statements, and how to defend your method choice to investors.