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Do the straight-line method and the production method and the double-declining-balance method differ in their effect on the company's profitability?
Wiki User
∙ 15y ago
The Straight-Line method tends to produce higher net income numbers and higher long-lived asset book values in the early years of a long-lived asset's life.
Wiki User
∙ 15y ago
Yes, the choice of depreciation method can affect a company's profitability. The straight-line method evenly distributes depreciation over the useful life of an asset, which can lead to stable financial statements. The production method ties depreciation expense to the level of production, impacting profitability based on usage. The double-declining-balance method accelerates depreciation in earlier years, potentially impacting profitability by reducing taxable income.
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Different depreciation methods can impact a company's bottom line by affecting the amount of depreciation expense recognized each period. Straight-line method evenly allocates the cost over the asset's useful life, leading to consistent expenses. Accelerated methods like double declining balance result in higher depreciation expenses in the early years which can lower taxable income and increase cash flow. This can impact financial ratios and net income, ultimately affecting the bottom line.
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