Which method of depreciation is considered more realistic according to the text?

The declining balance method is often viewed as more realistic for certain types of assets because it captures the rapid depreciation that occurs early in an asset's life. This method allocates a higher depreciation expense in the earlier years of the asset's useful life when the asset is typically more productive and valuable. As time goes on, the depreciation expense decreases, reflecting the declining utility and value of the asset.

This is particularly relevant for assets that tend to lose their value more quickly at the beginning, such as vehicles or advanced technology, which become outdated faster. By matching the depreciation more closely with the actual decline in usefulness and market value, this method provides a more accurate financial picture for businesses during the asset's early years.

In contrast, the straight-line method spreads the cost evenly over the asset's useful life, which may not reflect the asset's actual value decrease. The units of production method ties depreciation to usage, which can be useful but may not capture depreciation related specifically to time. Lastly, the sum of the years' digits method also emphasizes accelerated depreciation but is less commonly used than the declining balance method. Thus, the declining balance method's approach aligns more closely with the real-world valuation of many assets over time.