Question

Discuss the difference between the straight-line method of depreciation and the accelerated methods. Why do companies use different depreciation methods for tax reporting and financial reporting?

Answer 1

Difference between straight line method and accelerated method.

meaning-In straight line method same amount of depreciation is charged on assets in every year.

-In accelerated method different amount of depreciation is charged every year(tends to reduce) because it is calculated separately every year.

calculation-depreciation calculated on original cost.

-Accelerated dep.is calculated at a written down value(balance).

Straight line method of depreciation used in financial reporting because a company charges the same depreciation expense every accounting period throughout an asset''s useful life,so the effect is a stable and uniform reduction in revenues as asset values in every accounting period of the assets"s useful life.

Accelerated method use in tax reporting.this method allows higher deduction in the initial years of asset"s life which practice of saving tax money by charging higher depreciation in the starting year.