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Difference between straight line and diminishing balance method can be made as under:

 

Points of                                  Straight Line Method                                                                              Diminishing Balance Method

Difference

 

1. Amount of                           Equal amount of depreciation is charged  The amount of depreciation goes on re-

Depreciation                            every year.                                                                   ducing year after year.

 

2. Calculation of                      Depreciation is calculated on the original                    Depreciation is calculated on the reduc-

Depreciation                            cost of the assets.                                                    ing balance of asset.

 

3. Zero Level                           The value of assets can be written down to             The value of assets cannot be written

zero.                                                                          down to zero.

 

4. Effect on profit                    The initial years of the life of the asset bear                 Every year bears almost the same

and loss account                      lesser amount as depreciation and repairs but              charges. Depreciation goes on declining,

final years bear the same amount of deprecia-           whereas repairs and maintenance charges

tion but moe repairs and maintenance charges.                        go on increasing.

 

5. Suitability                            This method is useful for assets of lesser                The method is suitable for assets having

value such as patents, furniture and fixtures etc.     longer life and more value such as land and

building, plant and machinery etc.

 

6. Recognition by                    Straight line method is not recognized by               Written down value method is recognized

Income tax law Income tax law.                              by Income tax law.