Question is with reference to and from course of financial accounting

ANSWER :-

(A) STRAIGHT LINE METHOD

Straight-line deterioration method is the most straightforward method for ascertaining a resource's deficiency of significant worth or as such devaluation throughout some stretch of time. This method is useful in accounting as it helps in spreading the expense of a resource equally over the valuable existence of the resource. This method is likewise helpful in computing the annual expense allowances, yet just for certain resources, for example, licenses and programming.

Under the straight-line devaluation method, the division of the expense of the resource is equivalent during its valuable life. So deterioration charged is equivalent for consistently for the whole valuable existence of that resource. Toward the finish of the helpful existence of the resource, its worth is nil or is equivalent to the leftover worth. Accordingly, this method is otherwise called Fixed Installment or Fixed Percentage on cost method.

At the point when we mark the measure of deterioration charge and the charging time frames on the chart the outcome is a straight line. Subsequently, this method gets the name Straight line method.

This method is helpful if there should arise an occurrence of the resources where the valuable life and the lingering esteem are anything but difficult to compute precisely. In any case, in cases wherein beginning years the expense of fixes is low and will increment in the next years, the straight-line method will build the charge on benefit.

Likewise, to apply this method, the period for which the resource is under use should be thought of. Model, when a resource is under use for a very long time in a year, at that point the devaluation charge will be just for a very long time. Yet, in the event of the personal expense purposes, if the resource is being used for over 180 days, the deterioration charge will be of the entire year.

Employments OF STRAIGHT LINE METHOD

There is two purposes behind the utilization of straight-line deterioration method :

TO CALCULATE TAX DEDUCTIONS

At the point when a business buys a fixed resource, for example, a vehicle, furniture or PC, the whole sum can't be discounted in the primary year. All things considered, the whole sum is spread out across the period of time of the resource when it is useful.

FOR ACCOUNTING PURPOSES

The organizations may record the deterioration in their books. In the event that the business is utilizing the money premise bookkeeping method, at that point they don't have to devalue the resources in their books for bookkeeping purposes. Yet, they actually need to ascertain the devaluation for the duty derivation purposes. Be that as it may, when the business buys a costly resource and doesn't record the deterioration in the books, the fiscal report of the business may not mirror the exhibition of the business precisely. Along these lines, numerous organizations keep two arrangements of books.

FORMULA :-

To compute the deterioration through the straight-line method, the equation is:

Straight-line devaluation for the period= cost-anticipated remaining worth/anticipated helpful existence of a resource

This method devalues the estimation of a resource at a steady rate; subsequently, it is ideal to apply this method in a circumstance where the resource is receiving rewards at a consistent rate. In any case, in all actuality, this suspicion doesn't hold right. As a general rule, it is preposterous that the resource's utilization and effectiveness continue as before for the duration of its life. Since the effectiveness of a resource endures because of the ordinary mileage of the resource. Hence, the pace of advantage that resource harvests will decline with the progression of time.

ADVANTAGES AND DISADVANTAGES OF STRAIGHT-LINE DEPRECIATION METHOD

ADVANTAGES

(i) SIMPLICITY

The straight line method is the most straightforward method for figuring deterioration. A common individual can understand this method without any problem. The estimations for this method are simple and straightforward.

(II)  ASSETS CAN BE WRITTEN OF COMPLETELY

Under this method, resources can be discounted totally (for example to zero). As the devaluation in this method is determined on the first expense of the resource at the consistent rate, so the estimation of a resource is similarly spread out over the helpful existence of the resource.

(iii) ABSOLUTE DEPRECIATION CHARGE IS KNOWN

The aggregate sum of deterioration charge can be handily determined by increasing the yearly measure of devaluation with the all out number of the years the resource is under use.

(iv) REASONABLE FOR SMALL BUSINESSES

This method is reasonable for private ventures. Since this method is simple and straightforward, subsequently it suits the organizations which are little in size.

(v) Helpful FOR ASSETS OF LESSER VALUE

This method is helpful for computing the devaluation charge on the resources of lesser worth like furnishings and installations.

DISADVANTAGES

(i) TENSION ON FINAL YEARS

In the last long periods of the resource's life, it bears more fixes and support charges when contrasted with the initials years. Yet, the devaluation charge is equivalent for throughout the years. this put the unnecessary focus on the resource in conclusive years.

(ii) Doesn't HAVE THE PROVISION OF REPLACEMENT

Under this method, there is no arrangement for the substitution of the resource. The business holds the devaluation charge and uses it to perform standard undertakings. The firm needs to put forth the attempts to orchestrate the assets for supplanting the resource.

(iii) INTEREST LOSS

Under this method, the firm doesn't contribute the deterioration charge from the resource outside the firm, thusly don't get any interest.

(iv) COUNTER -INTUITIVE METHOD

This method is considered as an outlandish method since it appears to be strange to deteriorate the resource on the first cost when the equilibrium of the resource is declining each year.

(v) NOT USEFUL FOR AN ASSET WITH A LONG LIFE AND MORE VALUE

The straight line deterioration method isn't valuable if there should arise an occurrence of the resources where the increments and extensions can be made, for example, land, plant, and hardware, or structures. Likewise for the resources that are far reaching and have more worth, this method isn't appropriate.

(B). DECLINING BALANCE METHOD

In bookkeeping, the declining balance method is a quickened deterioration arrangement of recording bigger devaluation costs during the prior long periods of a resource's helpful life while recording more modest deterioration during its later years.

This procedure is valuable for recording the devaluation of PCs, mobile phones, and other high-innovation items that quickly gotten outdated.

The declining balance strategy speaks to something contrary to the straight-line devaluation method, which is more appropriate for resources whose book esteem consistently drops after some time.

Advantages and Disadvantages of Reducing Balance Method

Advantages

1. This method is easy to utilize.

2. This devaluation method is worthy for personal expense purposes.

3. Under reducing balance, the more noteworthy measure of devaluation is given in introductory years and this is coordinated against the higher measure of income produced by the utilization of new resource in beginning years.

Disadvantages

1. This method charges hefty measure of devaluation in prior years, and it can't lessen the book estimation of a fixed resource for zero on the off chance that it is wanted.

2. It requires high pace of deterioration on fixed resources else it will require some investment to record the resource for its lingering esteem.

(C) OUTPUT METHOD

The term units-of-output depreciation alludes to one of a few methods of apportioning the expense of a resource over its normal lifetime. The units-of-output depreciation method depends on the suspicion the resource will output a fixed number of units over its lifetime; in this way, the depreciation cost in a given bookkeeping period is straightforwardly identified with the resource's output in that equivalent bookkeeping period.

FORMULA :-

Units-of-Output Depreciation = (Cost of Asset - Residual Value)/Total Units of Output

Depreciation Expense = Units of Output Depreciation x Units Produced

EXPLANATION

The units-of-output depreciation method depends on the suspicion a resource will deliver a fixed number of units over its lifetime. The misfortune in estimation of the resource (depreciation cost) during a bookkeeping period is straightforwardly identified with the output of the resource in that equivalent bookkeeping period.

Depreciation is a bookkeeping method of cost assignment. It is utilized to apportion the expense of a resource over its helpful life. It's likewise alluded to as a non-money cost on the grounds that the money used to purchase the resource left the organization when it was bought. Depreciation permits the expense of a monetary record thing (a resource) for stream easily to the pay explanation (a cost) over its workable life.

ADVANTAGES

(i) It permits organizations to require some investment when the resource is more profitable/more utilized.

(ii) This method additionally assists with charge derivations. More critical depreciation cost in beneficial years assists with counterbalancing greater expenses and higher income in the year when the creation is higher.

(iii) This method additionally more precisely identifies with the mileage of the resource.

(iv) It encourages a business to follow the benefit and misfortunes more precisely than other depreciation methods, for example, MACRS.

(v) This method additionally assists with abusing the full estimation of resources. The depreciation begins when the resource starts to deliver units. And, closes when the resource approaches its assessed creation limit, or when its expense is completely recuperated, whichever is first.

(vi) It helps with deciding the effectiveness of resources.

(vii) Depreciation is in-accordance with creation and income.

DISADVANTAGES

(i) This method just thinks about utilization to figure depreciation. Be that as it may, in all actuality, a few components bring down the estimation of resource extra time.

(ii) Frequently this method probably won't be pragmatic. It is on the grounds that, in reality, an assembling organization has a few resources that help to make one item. In this way, monitoring every resource is extremely troublesome.

(iii) This method may bring about an alternate worth (Depreciation and book estimation) of the two same resources. It, thus, could prompt disarray.

(iv) For charge purposes, the unit of creation depreciation isn't fitting.

(v) This method of depreciation isn't usable in a few situations (as of now talked about under 'When and When Not to Use').

(vi) One can just utilize this method for assembling resources. For different resources, for example, building and furniture, we need to utilize other depreciation methods.

(vii) This method may neglect to give exact depreciation esteem as it overlooks the efflux of time.

(viii) Not everything organizations can utilize this method, for example, exchanging organization, administration industry, and more. Just assembling organizations can utilize this depreciation method.