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Difference Between Straight Line Method And Diminishing Balance Method

The following graph is taken from How to Site's Article Diminishing Balance Method     . I have liked this graph  to explain the difference between Straight line method and Diminishing balance method . Both methods are of Calculation the amount of depreciation in financial accounting  .


In straight line depreciation method , depreciation is charged on fixed asset with fixed rate . Suppose depreciation Rate is 10 % and Fixed Asset is 10

In the end of first year will be the depreciation = 1 and rest fixed asset will be 9

In the end of Second year will also depreciation = 1 and rest fixed asset will be 8

So , Graph will show the straight line  . So , this method is famous with this name due to this reason. In other words we can say that the amount of depreciation will equal in first year or in end of asset .

In diminishing balance method , depreciation is charged on the amount of fixed asset after deducting previous year depreciation

Suppose fixed asset is 10

Then depreciation of first year at 10% = 1

balance of fixed asset at the beginning of second year =9

now depreciation will charge on 9 not on 10

So  9 X 10/100 = 0.9

now the balance fixed asset in the beginning of third year will be = 8.1

Now again depreciation will charge on the amount of 8.1

So , slop of curve under diminishing balance method  will not straight line but more upward in left side .



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Accounting Education: Difference Between Straight Line Method And Diminishing Balance Method
Difference Between Straight Line Method And Diminishing Balance Method
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Accounting Education
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