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Category: Business and Industry

Date Submitted: 09/15/2012 02:56 PM

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The difference between the straight-line method of depreciation and the accelerated methods basically is the time chosen by a company to report their depreciations. The Accelerated depreciation methods give the companies the option to report higher depreciation expenses for the earlier years for the asset‘s usage and lower depreciation expenses to be reported on the later year of the asset‘s usage. Therefore more companies prefer to use the straight-line method of depreciation for their financial statements because even though this type of method gives the same amount of depreciation in each of the years of the asset’s life it is easier for a company to compute and understand. No matter what type of depreciation method is used by the companies because the maximum depreciation for the life of an asset is limited to the cost of the asset. For tax purposes the accelerated depreciation method offers higher depreciation in the early years of the asset that offers income tax savings to the companies. On the other hand, a company that uses a straight-line depreciation on its financial statements is also able to use accelerated depreciation on its income tax return. The disadvantages of using different straight-line method is that it does not provide the exact actual rate and pattern of the lose value of an asset. An the disadvantage of accelerated methods have a bigger risk and higher cost of recaptured depreciation because a they report a higher depreciation in early years, which means that the IRS will have to take back the depreciation deductions already reported because the asset didn‘t lose its value as predicted and its profits will have to be reported in their income taxes as income.