Question

When should the straight line method be used in accounting over the production method? I know it makes a difference in the totals, but is there a benefit for do one or the other for a business? Is there a specification on which one you have to use?

Answer 1

Dépréciation is an expense deducted by the entities from the values of fixed assets every year on the basis or going concern concept.

There are various methods of depreciation. Straight-line and units of production methods are also from them.

Straight line method is used over the units of production method when an entity uses the asset each year equally so that it can deduct a particular amount each year from the cost of the assets. In other words, when the use of machine is equal each year but the level of production increases or decreases on the basis of demand, then the straight line method is used over units of production method.

The biggest difference between both the method is the depreciation amount.

In straight line method, an equal amount of expenses are deducted from the cost of the machine while in units of production method, the amount of depreciation expense depends upon the units produced each year.

Yes, it differes business to business as the expenses of a business depends upon the nature of a business. As depreciation expense reduces, the net income of an entity, some organizations use double declining balance method for the purpose of saving tax, some entities use Straight-line method because of its simplicity, etc. So the specifications of using the types of depreciation methods is only saving taxes, simple in calculations, depends on the units produced, etc.