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Why do we prefer diminishing value depreciation rather than straight line depreciation.

Why do we prefer diminishing value depreciation rather than straight line depreciation.

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In the diminishing value depreciation method, the annual depreciation expense decreases over the useful life of the asset.In the early years of the life of the asset, the depreciation expense will be higher when compared to the straight line depreciation expense.

Thus by adopting the diminishing value depreciation, a firm can save higher amount of taxes in the initial years of purchasing the asset whereas in straight line depreciation the amount of taxes saved will be less in the initial years when compared to diminishing value method. In the straight line method the depreciation expense will be the same throughout the useful life of the asset.

Thus firms prefer to use diminishing value depreciation rather than straight line depreciation.

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