Understanding Straight Line Depreciation

What is the definition of Straight Line Depreciation?

• Straight Line Depreciation is a technique that accelerates the depreciation of an asset in the first year.

• Straight Line Depreciation is a method that calculates depreciation based on the asset's market value.

• Straight Line Depreciation is a method of calculating depreciation where the asset's cost is spread evenly over its useful life.

• Straight Line Depreciation is a method that only applies to intangible assets.

How is the annual depreciation expense calculated using the straight line method?

• Annual Depreciation Expense = (Cost + Salvage Value) / Useful Life

• Annual Depreciation Expense = Cost / Useful Life

• Annual Depreciation Expense = (Cost - Salvage Value) / Useful Life

• Annual Depreciation Expense = (Cost - Useful Life) / Salvage Value

What formula is used to determine the straight line depreciation?

• (Cost - Useful Life) / Salvage Value

• (Cost - Salvage Value) / Useful Life

• Cost / (Salvage Value + Useful Life)

• (Cost + Salvage Value) / Useful Life

What are the key components needed to calculate straight line depreciation?

• Annual revenue, operating expenses, interest rate

• Market value, depreciation rate, tax rate

• Inventory value, production cost, sales price

• Initial cost, salvage value, useful life

What is one major advantage of using the straight line method?

• Higher depreciation rates than other methods.

• Complex calculations required.

• Simplicity and ease of calculation.

• Increased accuracy over time.

How does straight line depreciation affect a company's net income?

• Straight line depreciation increases a company's net income.

• Straight line depreciation has no effect on a company's net income.

• Straight line depreciation only affects cash flow, not net income.

• Straight line depreciation decreases a company's net income.

In what scenarios is the straight line method most beneficial?

• When the asset is used sporadically or infrequently.

• When tax benefits are prioritized over consistent expense allocation.

• When asset usage is consistent over time.

• When the asset is expected to appreciate significantly.

What impact does straight line depreciation have on asset valuation?

• Straight line depreciation increases asset valuation over time.

• Straight line depreciation has no effect on asset valuation.

• Straight line depreciation only affects cash flow, not asset valuation.

• Straight line depreciation decreases asset valuation over time.

How does straight line depreciation differ from declining balance depreciation?

• Straight line depreciation results in higher expenses in the early years; declining balance depreciation results in lower expenses in the early years.

• Straight line depreciation is even over time; declining balance depreciation decreases over time.

• Straight line depreciation is used for tax purposes; declining balance depreciation is not allowed for tax purposes.

• Straight line depreciation is based on market value; declining balance depreciation is based on purchase price.

What happens to the book value of an asset over time with straight line depreciation?

• The book value of an asset increases exponentially over time.

• The book value of an asset remains constant over time.

• The book value of an asset fluctuates randomly over time.

• The book value of an asset decreases linearly over time.