Advantages Of Straight-Line Depreciation

732 Words3 Pages
Depreciation is the permanent decrease in value of a non-current asset during a given accounting period. (Company Act , 1965) .Depreciation is the term applicable to tangible non-current asset which has physical substance, can be seen and touched. First of all, Straight Line method is also known as Fixed Instalment method. It is the most commonly used method. The annual depreciation expense or charge to the profit and loss account. It is also charges cost evenly throughout the useful life of a fixed asset. The straight line method is appropriate where economic benefits from an asset are expected to be realized evenly over its useful life.Therefore, this method is most appropriate to be used for the assets that deplete through the passage of…show more content…
“Straight-line depreciation does not represent the loss of efficiency or the rise in repair expenses over the years. Hence, it is not suitable for expensive assets such as plant and equipment. The useful lifetime of some assets cannot obviously be predictable. When the useful life of an asset is not expectable, the straight-line depreciation method should not be used.” The main advantages of reducing balance method is simple to implement and easy to understand. It is calculated every year on the opening balance of asset. Other than that, this method is acceptable for income tax purposes and have tax benefit. For most of them that put themselves in businesses will receive their tax break sooner rather than take it later. This is because their business is able to claim a larger depreciation tax deduction earlier on. For example, reducing balance method shows a new car will lost it value quickly. So, this method is better match depreciation expense with an actual decline in the fair market value.Besides that, the other advantage is it matches the cost and revenue of the business. In other words, if there is a greater amount of depreciation provided during the initial years, it is matches against the higher amount of revenue generated by the increased production because of the use of new asset.The reducing balance method will charge big amount of depreciation in earlier

More about Advantages Of Straight-Line Depreciation

Open Document