Essay: Straight Line Method for Depreciation

Sample Essay

The straight line method for depreciation will be preferred for financial reporting purpose as it would yield a lower amount of depreciation expense in the initial years on the income statement and a higher book value on the balance sheet of the company. The double declining method will be used for tax purposes as it yields the highest amount of depreciation expense which entails lower net income and eventually lower income taxes.

The double declining method of depreciation has the greatest effect on cash flow each year as the depreciation amount is variable throughout the year and higher repair expenses made in the later years of the asset’s life are offset by the reduced amount of depreciation expense.

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