CA Foundation Exam > CA Foundation Videos > Principles and Practice of Accounting > Straight line method, Written down value & Sum of years digit method
Straight line method, Written down value & Sum of years digit method Video Lecture | Principles and Practice of Accounting - CA Foundation
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FAQs on Straight line method, Written down value & Sum of years digit method Video Lecture - Principles and Practice of Accounting - CA Foundation
| 1. What is the straight-line method of depreciation? |  |
Ans. The straight-line method of depreciation is a commonly used accounting method to allocate the cost of an asset evenly over its useful life. Under this method, the depreciation expense is calculated by dividing the difference between the asset's initial cost and its salvage value by the number of years of its useful life.
| 2. What is the written down value method of depreciation? | |
Ans. The written down value method of depreciation, also known as the reducing balance method, is an accounting technique used to calculate the depreciation expense of an asset. In this method, the depreciation is applied to the asset's net book value (cost minus accumulated depreciation) at a constant rate. As the asset's value decreases over time, the depreciation expense also decreases.
| 3. How is the sum of years digit method of depreciation calculated? | |
Ans. The sum of years digit method of depreciation is a technique to calculate the depreciation expense of an asset based on its useful life. To calculate the depreciation under this method, you need to add the digits of the asset's useful life and then allocate the depreciation expense based on the proportion of each digit to the total sum of digits. For example, if an asset has a useful life of 5 years, the sum of the digits would be 15 (1+2+3+4+5), and the depreciation expense would be allocated accordingly.
| 4. What are the advantages of using the straight-line method of depreciation? | |
Ans. The straight-line method of depreciation offers several advantages, including simplicity and ease of calculation. It provides a consistent and predictable depreciation expense over the asset's useful life, making it easier for companies to budget and plan for future expenses. Moreover, this method is widely accepted and recognized, making it easier for financial reporting and comparisons across companies.
| 5. How does the choice of depreciation method affect financial statements? | |
Ans. The choice of depreciation method can have an impact on a company's financial statements. The straight-line method typically results in a more even distribution of depreciation expenses over time, which can lead to a smoother income statement and more stable net income. On the other hand, the written down value method may result in higher depreciation expenses in the earlier years, impacting profitability. The choice of method can also affect the balance sheet, as it influences the carrying value of the asset and its impact on equity.
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Dec 05, 2024 Last updated |
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