Preview

Differentiating Depreciation Methods

Satisfactory Essays
Open Document
Open Document
265 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Differentiating Depreciation Methods
Differentiating Depreciation Methods

Straight-line method of depreciation is where the depreciation is charged as long as you have an asset. However, an accelerated method of depreciation is where the depreciation that you have charged the amount will decline over a period of time. In straight-line method in order for you to get the depreciation amount the asset is subtracted from its cost. In the mean time, accelerated method is charged in the beginning of the life time but in the end it is charged less. The formula that is used for straight-line method of depreciation is depreciation equal to cost minus salvage value over life in number of periods. In accelerated method the formula for declining balance is depreciation equal depreciation rate time book value of asset. Then the depreciation rate equal accelerator time straight-line rate. Companies use different depreciation methods for financial reporting because they have to follow rules relating to taxes when reporting tax depreciation. When they used tax depreciation on accelerated method is because of the different declining balance methods. Financial reporting in straight-line method has declining balance methods with multiples rates. A company use different depreciation methods because of the different classes of assets. Straight-line advantage is as it ages it determine the value of the business assets. The disadvantage in straight-line is that the rate may not depreciate the same every year. The disadvantage of accelerated method is that it can calculate a higher depreciation charge. The advantage is the tax benefit to the company because of the time-value of

You May Also Find These Documents Helpful

  • Good Essays

    Markes uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $1,500,000. No other differences existed between book income and taxable income except for the amount of depreciation.…

    • 2248 Words
    • 9 Pages
    Good Essays
  • Satisfactory Essays

    Straight line method is the simplest method of calculating depreciation. The amount charged each year over the useful life of the asset is uniform. Companies add up all the costs incurred to bring the asset in use. After cost are added the value is divided by useful life of the asset in years so as to come up with the depreciation expense. The important characteristic of the straight line method is that the depreciation expense is constant. This helps the company when adjustments are needed and it is easy to predict. Double declining is also known as accelerated depreciation. Using double declining balance is done by using 200 percent of the straight-line method. This method subtracts the salvage value from the cost of the asset. The total is then divided by the useful life of the asset and multiplied by 200 percent to get the annual depreciation amount.…

    • 341 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    ACA1 TASK 3

    • 435 Words
    • 2 Pages

    The calculation of the straight line method of depreciation is by taking the cost of the item minus its salvage value then dividing that figure by the expected year’s life cycle of the item. This is a non complex calculation and it reduces net income and the equal amounts of depreciation are deducted from every life cycle year of the item.…

    • 435 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    D2: A variety of depreciation methods are used to allocate the cost of an asset to all of the accounting periods benefited by the use of the asset. Your client has just purchased a piece of equipm...…

    • 665 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Acg 320

    • 496 Words
    • 2 Pages

    Using straight line deprecation of 1 year means that 22,500 (1*22,500) has been added to the accumulated deprecation. The cost of the assets $100,000 minus $22,500, equal the book value at the end of December 31, 2005, of $77,500.…

    • 496 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    The depreciation method that provides you the highest depreciation expense in the first year is the Declining-balance method because with this method there is a decreasing annual depreciation expense over the asset’s useful life.…

    • 875 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    ACC 205

    • 317 Words
    • 2 Pages

    2. A variety of depreciation methods are used to allocate the cost of an asset to all of the accounting periods benefited by the use of the asset. Your client has just purchased a piece of equipment for $100,000. Explain the concept of depreciation. Which of the following depreciation methods would you recommend: straight-line depreciation, double declining balance method, or an alternative method?…

    • 317 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Week 3 Quiz 1

    • 1430 Words
    • 6 Pages

    For the double-declining-balance method, the depreciation rate would be 25% or (1/N X 2), with n = 8 years. For 2011, annual depreciation expense is $15,000 = $60,000 (book value) X .25; for 2012, annual depreciation expense is $11,250 = [($60,000 - $15,000) X .25].…

    • 1430 Words
    • 6 Pages
    Satisfactory Essays
  • Better Essays

    Harnischfeger Case

    • 1476 Words
    • 5 Pages

    Harnischfeger is adjusting its depreciation policy to the straight-line method from accelerated method they were using previously, which let the company increase net income as the adjustments are being applied retroactively. This change increased the net income to 11 million for 1984. Furthermore, this change will decrease profit in future years, because with the accelerated method, in the future years the depreciation expense would have been lower, and with the straight line they will continue to depreciate in the same amount for the life of the asset.This change will decrease profit going forward, because with the accelerated method the depreciation expense would have been lower as opposed to the straight line method they will continue to depreciate in the same amount for the remaining life of the asset.…

    • 1476 Words
    • 5 Pages
    Better Essays
  • Powerful Essays

    In 1984 they changed the depreciation method from accelerated methods to the straight-line for financial reporting purposes. This change included a adjustment of the residual values on certain machinery and equipment. They also included the products purchased from Kobe Steel, LTD and sold by them in their net sales. Moreover, they also included the financial statements of some foreign subsidiaries.…

    • 1524 Words
    • 7 Pages
    Powerful Essays
  • Good Essays

    Ad Ad Ad Blockbuster

    • 464 Words
    • 2 Pages

    Because of the change method of the depreciation from a straight line to the accelerated, therefore, there is recognition of a more depreciation expense up front and there is no decrease that is experienced. There is also a decrease in the ESP ratio.…

    • 464 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    This means that when a bond's book value decreases, the amount of interest expense will decrease. Therefore, the effective interest rate method is more logical than the straight-line method of amortizing bond premium.…

    • 809 Words
    • 4 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Like mentioned earlier, using this method helps companies shield revenue from taxes. Using accelerated depreciation will allow higher deductions in the early years of an asset's life. Companies will save tax money in the early years, enabling them to invest in more assets to increase revenues in the future. Although, after a few years, this will lead to smaller depreciation expenses and greater taxable income in the later years of the assets. Companies also have the option to use the straight-line method on their financial statements and accelerated depreciation on its income tax returns. To provide an example, let us assume Starbucks buys a coffee machine for $100,000 and they expected to last for 10 years. If they decide to use the straight-line…

    • 182 Words
    • 1 Page
    Satisfactory Essays
  • Good Essays

    9706 S06 Qp 4 3

    • 1318 Words
    • 13 Pages

    If you have been given an Answer Booklet, follow the instructions on the front cover of the Booklet.…

    • 1318 Words
    • 13 Pages
    Good Essays
  • Good Essays

    Business Studies

    • 686 Words
    • 3 Pages

    Depreciation is to be provided on fixtures and fittings at 20% per annum using the straight line basis.…

    • 686 Words
    • 3 Pages
    Good Essays

Related Topics