Explain the advantages and disadvantages of using the Straight line, fixed or equal instalment method of depreciation of fixed assets

March 12th, 2011 Comments off
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{ Note that the straight line method is also known as the fixed or equal instalment method} 

See earlier article on details of this method.

Below tabulate the advantages and disadvantages of using the Straight Line method:-

Advantages:

  • Over the period of useful life of the fixed asset, the total burden of depreciation and repairs cost s are disproportional over the effective life on the asset. Using this straight line basis of depreciation, the burden will be light in the initial period and will be heavy in later stage of the useful life of the fixed assets.
  • Any additions of fixed assets item will need to be computed separately
  • Value of asset appear to be zero but asset is still in existence even after its useful life.
  • Simple depreciation method to use
  • This method is useful for assets having small intrinsic value like furniture & fittings, patents, trade mark where the depreciation can be written off within their estimated , legal or commercial life.

Disadvantage:

  • Straight line basis of depreciation is not a suitable method for assets like Plant and machinery as depreciation is constant while the repairs on such assets will be heavy in later years.

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Financial Accounting

 
 

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