ACC 230 WEEK 2: Differentiating Depreciation Methods: Straight-Line vs. Accelerated Depreciation

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ACC 230 WEEK 2: Differentiating Depreciation Methods: Straight-Line vs.Accelerated DepreciationACC 230 WEEK 2CheckPoint: Differentiating Depreciation Methods· Resource: Ch. 2 of Understanding Financial Statements· Due Date: Day 4[Individual forum]· Compose a 200-to 300-word response to question 2.4 on p. 74 (Ch. 2). In addition,include a summary of the advantages and disadvantages of using different depreciationmethods (straight-line versus accelerated).Discuss and differentiate straight line method of depreciation and accelerated method.Depreciable assets lose value with time because of wear and tear, aging and obsolescence.This loss invalue of tangible assets with time is called depreciation.Straight line depreciation method is most commonly used. In this method,charges are spread evenlyover the useful life of the asset.Depreciation charged every year in this method is constant. This allowsfor moreincomesmoothing where income has gradual changeover useful life of the asset without dipsand highs.Accelerated method of depreciation assumes that an asset is used heavily during the early years of itsuseful life and loses most of its value during first few years of use.In this method, in early years there willbe heavy depreciation. Depreciation decreases with time and by the end of useful life of the asset,depreciation becomes zero. So, this method lacks constant expense over time. However,sincedepreciation is deducted from income fortaxreporting,accelerated method allows largertaxdeductionin early years that improves profit. Although straight line method will also provide sameamount oftaxdeductionin later years, because of time value of money,taxsavingin early years isbetter for the company.Why do companies use different depreciation methods for tax reporting andfinancialreporting?For financial reporting purpose, Straight line method is used because it resembles the benefit derivedfrom the asset and actual loss in value of the asset with time.Since straight line method charges lessdepreciation as compared to accelerated method in early years, book value of the asset remains higher

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