Study with Us the Difference between Straight Line and Diminishing Balance Method
Companies need to be careful when calculating for one year’s profit and loss. There are assets used for crating revenues which shouldn’t be directly charged against expenses. It is when you will learn about depreciation. Those assets are useful till their lifespan is over, so with depreciation slowly the amount used as cost will be cut from profit and loss a/c over the year. You will come across straight line and diminishing balance method. Get Difference between Straight Line and Diminishing Balance Method Assignment Help from the experts at 24x7assignmenthelp.com for a complete view.
What is straight line method?
In Difference between Straight Line and Diminishing Balance Method Assignment Helpthis depreciation method, you will cut off the value of that asset over the year with equal amount. The general idea of this method is that any asset will have same amount of service to pay in their useful lifetime. That is why the line in graph will be straight to represent their equal amount of value and used up lifetime in each accounting year.
What is diminishing balance method?
You will come across this other method while reading Difference between Straight Line and Diminishing Balance Method Assignment Help. In this method, a fixed percentage is charged against the value of that asset. Each year the value starts to reduce and also the amount of depreciation charged against it. For this reason it is also known as reducing balance method.
Different between straight line and diminishing balance method:
|Straight Line Method||Diminishing Balance Method|
|You will have to calculate depreciation on original cost of that asset.||In this method, you will need book value to calculate depreciation.|
|Each year you will charge depreciation value with an equal amount used last year.||Each year depreciation amount will vary.|
|This method isn’t recognized by Income tax authorities.||This method is recognized by Income tax authorities.|
|The value of that asset turns to zero at an end of its lifespan.||The value of that asset doesn’t turn to zero.|
|It charges equal amount each year from profit and loss a/c.||It will charge different amount each year from profit and loss a/c.|
|It is a proper method for assets that require lower repairing cost each year.||This is a proper method for assets needing repairing frequently.|
|From Difference between Straight Line and Diminishing Balance Method Homework Help you will find additions require separate calculation.||It becomes difficult to calculate when an addition is made.|
|The depreciation is based on a fixed amount.||The depreciation is based on a fixed percentage.|
|This depreciation value is separated equally over the year of its useful lifetime.||The depreciation value is reduced each year by charging a fixed percentage on the last year’s amount.|
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