Advantage And Disadvantages Of Depreciation

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4. Discuss about depreciation.
Depreciation is a method of allocating the cost of a tangible asset over the period in which the assets are used. Most types of tangible assets such as machinery, vehicles, furniture, equipment and buildings are depreciable. The only exception of tangible asset which is not depreciated is land because land is not depleted over time. Depreciation also is a monetary value of an asset decreases over time due to use, wear and tear, unfavourable market conditions or obsolescence of the property.
Besides, businesses depreciate long-term assets for both tax and accounting purposes. For accounting purpose, depreciation indicates how much of an asset’s value has been used up. For tax purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses. Depreciation is a non-cash expense. In addition, depreciation is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. For example, if a
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The one of advantages of straight line method is easy to understand and simple to calculate. The next advantage of straight line method is it may be suitable where an asset such as plant, machinery and vehicles utilization is the same in each year. Straight line method is useful where the pattern of economic benefits is hard to determine with precision. Another advantage of straight line method is it is most appropriate for assets that are depleted as a result of the passage of time, such as buildings, leases and patents.
The disadvantage of straight line method is it assumes the benefits contributed by an asset are the same over the period in which the assets are used. Besides, straight line method may not give an accurate measure of the loss in value or reduction in useful life. The other disadvantage is it may not reflect the true pattern of asset’s economic benefits.
Method 2: Reducing Balance
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