Facilitating Straight Line Depreciation
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Straight Line Depreciation
We are providing guidelines regarding the concepts involved, steps undertaken and issues faced while implementing Straight Line Depreciation. Straight Line Basis is a technique of calculating depreciation that is an accounting method of evaluating "diminishing" of an asset value over a period of time. It also implies that depreciation depicts values of asset losses every time it is utilized. Depreciation is evaluated over a span of time which is termed as "useful life span of an asset. Every asset possesses a pre-determined useful life span. As examples, a factory establishment may depreciate over 20 years while a machinery may depreciate over 10 years. The extent depreciation during any time period of the asset's useful life span can be treated as an "expense" on an organization's or an individual's profit and loss account.
There exist five methodologies of evaluating depreciation based on Generally Accepted Accounting Principles (GAAP) guidelines. Utilization of each of these techniques is dependent on the prevailing current tax laws as applicable to a particular asset. Whereas depreciation may not augment the revenue, it is an essential accounting expenditure, permitting capital intensive organizations to make a substantial improvement to their balance sheets. A brief about the five methods of depreciation is given as under:-
- Straight Line: Utilizing this technique, the depreciation of a particular is distributed equally over its useful life span
- Accelerated Depreciation: By this technique, the biggest depreciation occurs during the initial years during which an asset is bought.
- Capitalized: Through this technique, a specific asset never depreciates.
- Expensed: Utilizing this technique, the assets depreciate completely in the initial year.
- Double Diminishing Balance: This technique utilizes two-times the straight-line percentage for the initial year and then the same percentage is applicable to the balance every following subsequent year.
Using Straight line basis for evaluating depreciation requires high quality knowledge and technical expertise of the accounting techniques. A short explanation of the straight line technique used for calculating depreciation is given as under:-
Straight line depreciation technique charges the costs equally over the useful life span of a fixed asset. This method is simple and easy to implement wherein no accurate estimate cane be formulated related to the configuration of economic gains anticipated to be attained during an asset's useful life span.
Straight line depreciation evaluated utilizing any one of the following formulae:
Depreciation per annum
( Cost - Residual Value )
Depreciation per annum = (Cost - Residual Value) x Rate of depreciation
- Cost is the initial acquired costs related to the asset and any further capital expense
- Residual Value, also known as its scrap value, is the projected gains from disposing an asset after its useful life span has expired.
- Useful Life is the projected time period that the asset is anticipated to be used from its date of availability to disposal.
- Rate of depreciation is the percentage of useful life which is utilized during a single accounting period.
Few Difficulties And Problems Are Encountered While Calculating Depreciation Using Straight Line Basis.
Some of them are listed as under:-
- A common issue or confusion may occur in the identification of Straight line assets. In case more than the required assets are considered as straight line assets, then this may result in erroneous calculation of straight line depreciation.
- There may be a difficulty in understanding the formulae and the concepts involved for calculating Straight line depreciation. Concepts like cost, residual life, useful life and rate of depreciation need to be clearly understood while calculating Straight line depreciation.
- Certain gaps in competency levels and subject understanding of accounting principles. There needs to be a thorough comprehension of Generally Accepted Accounting Principles (GAAP)guidelines which is essentially required for accurate computation of Straight line depreciation.
- Erroneous estimation of useful life is a possibility which results in inaccurate calculation of Straight line depreciation.
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Some of the services being provided by us are mentioned as:-
- Superior quality technical expertise and know-how related to effective accounting techniques which can be utilized for execution of assignments pertaining to calculation of Straight line depreciation.
- We have described in detail the various steps involved and the formulae to be used for calculation of Straight line depreciation.
- We have also clearly explained the concepts of the various terminologies used in Straight line depreciation calculation formulae viz. Cost, Useful life, residual life and rate of depreciation
- Several effective samples and examples of Straight life depreciation calculations are available on our platform which can be used as guidelines.
- Problems and issues encountered while calculating Straight line depreciation are also highlighted on our platform.
To summarize, calculation of Straight line depreciation is an art which requires superior quality knowledge and expertise of accounting solutions. Why we should be chosen for assignment completion related to calculation of Straight line depreciation-the key reasons are listed as under:-
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- We provide a clear and concise understanding on the Generally Accepted Accounting Principles (GAAP)guidelines which is very important for accurate computation of Straight line depreciation.
- We provide numerous sample calculations and examples of Straight line depreciation that enable our readers to easily grasp the concepts behind these calculations.
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