The advantages of declining balance depreciation in a nutshell
There are two types of depreciation - linear and degressive. But are there any advantages to either of these two variants?
There are two different types of depreciation, on the one hand linear and on the other hand declining balance depreciation. In the following, the latter is explained in more detail and the advantages of it discussed.
This is understood by the declining balance depreciation
You will always hear the term depreciation in connection with a company's acquisitions. This is primarily about being able to get the replacement value for an item back.
With declining balance depreciation, you have a fixed interest rate per year that you can write off from the residual value. This means that you can claim this amount for tax purposes at the end of the year and thus secure a tax advantage.
Declining balance depreciation - the advantages of this method
The advantages of declining balance depreciation over linear depreciation can be answered relatively quickly. Above all, the tax aspect is in the foreground here. The amount of the depreciation is highest in the first year because you always calculate the percentage of the residual value of the object.
This means that if you as a company know that you can expect relatively high profits in the following year, you have the option of using the declining balance depreciation as an advantage. Due to the fact that the amount is relatively high at the beginning, the company can learn a lot steer save.
Another advantage of declining balance depreciation is that it is not tied to a fixed term. The problem with straight-line depreciation is that you have a fixed time. This means that you are tied to this time and therefore cannot vary with the depreciation amounts.
The straight-line and the declining balance depreciation are terms from tax law. She …
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