Depreciation

Depreciation methods Kaleal Snyder ACC/230 10/20/11 Eddie Mattison The straight line method of depreciation is an alternative and simple way to measure the cost of the use of something purchased over its lifetime. This method involves breaking down the expected life, expected salvage return after its company’s use is over, and the cost over that period of time. This method takes the life and divides the cost evenly over that period of time. The use of this method in financial reporting could be to impact the cost of depreciation more evenly to allow the profit to be comparable over a time period. The use of this method for tax reporting is to pay less tax on the purchase in the beginning of its life and more in the end, either way the same amount should have to be paid eventually. The disadvantage of this method is that it restricts the option of keeping more of the company’s profit for longer to allow more use and growth of those funds. The advantage is that it should be easy to expect what it is going to cost of over the life of the purchase, which will be a steady and constant amount. Accelerated depreciation methods is when a purchase is made and the cost for the expected life is assessed on a ranging scale, usually a large amount at first and then less over the life. The advantage of these methods are that reporting for tax purposes there can be less taxes paid in the beginning of its life and those funds can be used to make more money. The disadvantage of this method is that there is going to be that period of time when the business has to account for the smaller amount and pay more a higher tax amount.