Lwaters AB 113 Unit 8 Writing Assignment

Lorenzo Waters
AB113
Unit 8 Writing Assignment
12/5/2014

Question 1 using the straight line method
Depreciation for the first year
$300,000/5 = $60,000
Question 1 using double declining
2/5 * $300,000 = $120,000

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. In my opinion, the best method that the company would use is the straight line method. Salvage value seems to be very important for a small business. It doesn’t seems to be the best interest of the company to subtract value from an asset. When using the straight line method the total depreciation is taken into account. A small business should have the ability to take full value of assets over the years. As business grows the full value would look better on the balance sheet. Most small businesses do not have the finances to hire full time accountants. The use of the straight line method seems to be an accurate and simple method.
Reference
Do Companies Still Use the Straight Line Method for Tax Depreciation? (n.d.). Retrieved December 5, 2014, from http://smallbusiness.chron.com/companies-still-use-straight-line-method-tax-depreciation-33358.html
Warren, Carl