Which depreciation method is more suitable for assets that experience rapid obsolescence?

The diminishing value method is particularly suitable for assets that experience rapid obsolescence because it results in higher depreciation expenses in the earlier years of the asset’s life. This method allocates more depreciation when the asset is new and likely to lose value quickly due to technological advancements or changing market conditions.

As the asset ages, the depreciation expense decreases, reflecting the reduction in its useful life and value. This approach aligns well with the realities of rapidly obsolescing assets, which experience a significant drop in value soon after purchase.

The other methods, such as the straight-line method, distribute depreciation evenly over the useful life of the asset, which may not accurately reflect the rapid change in value for such assets. The units-of-use method ties depreciation to actual usage, which could be less predictable for assets that become obsolete quickly. Meanwhile, the sum-of-the-years' digits method does accelerate the depreciation but may not do so as effectively or straightforwardly as the diminishing value method in scenarios of rapid obsolescence. Thus, the diminishing value method is preferred for this situation due to its accelerated expense recognition in the earlier periods.