Differentiating Depreciation Methods

Differentiating Depreciation Methods
Henry, Lwanga
ACC/230
01/26/2012
Renata, Milton
The process of wear and tear is a system of allocation the cost of long-lived pluss. The original cost less(prenominal) any estimated residual value at the end of the summations vivification is spread over the expected life of the addition.
Although the total amount of depreciation over the assets life is the same regardless of the mode utilized, the rate of depreciation varies. There are three common methods of depreciations used in the accounting industry each with a unlike occasion; straight line depreciation method, the quicken depreciation method and the units-of-production depreciation method.
The straight-line method spreads the expense evenly by periods and the accelerated methods yield higher depreciation expense in the ahead of time years of an assets useful life and spurn depreciation expense in the later years piece the units-of-production method, bases depreciation expense for a given period on actual use.
Companies use different depreciation methods for tax report and financial reporting because every participation has a different asset quality and the depreciation on those assets for each company depreciates differently so it is up to the management to be clear-cut to which choice of depreciation to use in their reporting in respect to their fixed assets.




Straight Line method:
favor:
1) Straight-line method allows for much income smoothing.
2) It allows company to show more hold value of the asset which increases the value of the company.

Disadvantages:
1) benefit of Tax tax write-off is availed late.
2) In practical, annual benefit from the assets use decreases with age

Accelerated method:
Advantage:
1) This method allows more tax deduction in early years
2) As asset depreciates faster, future expenses in the upkeep of the asset also decreases.
3) This method provides significant benefits in early years. This is beneficial as asset may become obsolete or...If you want to get a full essay, order it on our website: Ordercustompaper.com



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