Advantages and Disadvantages of Straight Line Method Homework Answers
Before discussingÂ the advantages and disadvantages of straight line method homework answers, one needs to understand why it is required to be used. Asset valuation is a bigger but widely used term in business.
It is a process of valuation of business by assessing the asset, net worth and real property of the company. It is required to be done before the purchase or sale of any asset. It will allow the assessor to give proper detail about the life line of the asset to the company.
The asset includes tangible goods like bonds, Plot over which office situated, office building, furniture, pieces of equipment and non-tangible goods like goodwill, brands, patent, service, etc. The non-tangible asset is not easy to evaluate.Â The advantages and disadvantages of straight line method homework answersÂ will help you a lot in handling valuation of non-tangible assets.
Straight line method
It is a common method used to analyze the valuation of the asset in the company. Asset occupies an important part in the balance sheet. In straight-line method, depreciation is calculated for asset and amortization is done for the non-tangible asset. It is a method in which company can stretch the value of the asset over a period of time in the form of a straight line rather than just calculating the value at the certain time period.
The advantages and disadvantages of straight line method homework answersÂ will help you in analyzing the value of the asset in a straight line. Also, it will help you to analyze the advantage and disadvantages of the straight line method.
It is a channeling job as the person will have to distribute the real value of the asset which company is planning to purchase. Every good asset purchase results into a good return to the company similarly the lifeline of the life of the asset will tell the company whether to invest in the asset or not because after a certain period of time asset will be degraded and will become a load to the company. It is an important decision.
Usage in depreciation method:
Accountant mostly used Straight line method of depreciation because
- It is easy to understand, and a line graph is easy to present in the presentation. The strategic team can easily understand the longevity of the asset and service they are planning to purchase or sale.
- It is not so complex as compared to other methods used for asset valuation like double declining balance sheet method,
- A chance of error in calculation is less as compared to other methods used for asset value calculation.
- This method is simple in nature. TheÂ number of calculation is less as compared to other methods.
- It involves calculation of three main points initial value of the asset, the value of asset till the point it is useful in nature and period of years, the asset will be useful to the buyer.
The advantages and disadvantages of straight line method homework answersÂ will help you a lot while calculation of the above three values and they will also help you in understanding the usage of the method before purchase and sale of any company asset. An asset plays a very important role in companyâ€™s balance sheet.
How is straight line method of depreciation used?
Depreciation is the loss of the value of the asset from the price it has been purchased because of wear and tear happened because of continuous usage of the asset. In initial days, the asset will be working properly and the money needs to be spent on maintenance is low, but over a period of time, the value of the asset will reduce because the money you need to spend on maintenance is more than the value it is giving.
Straight line method of depreciation depicts a straight line which represents the value of the asset which is spread over a period of time. Since the value of depreciation in the balance sheet is in the form of a straight line, so it is named as Straight line method of depreciation.
Formulae used for calculation is depreciable value divided by the number of years the asset is used. Depreciable value is calculated for the time period the owner start using the asset and till the time the value of the asset become zero that is for example if for any initial asset cost was 100 when user start using it, they used it for 10 years before the asset value is reduced to zero, in that case, the depreciable value is 100/10.
It can also be calculated for partial years of usage. In that case, the formulae of depreciable value are depreciable value divided by the number of years the asset was used multiplied by the number of months in a year the asset was used divided by 12. So the formulae become Depreciation expense multiplied by the number of months in a year it was used divided by 12. The number of years asset was used should be in terms of the financial year.
The advantages and disadvantages of straight line method homework answers will help you in guiding regarding the solution of the valuation of asset and their depreciated value. Also, it will help an individual in preparing the graph. The graph is easy to represent in the presentation. The strategic team of the company can easily understand it and analyze the data accordingly.