Differences between straight line method and diminishing balance method of depreciation | Depreciation and Fluctuation ✌🤔

Differences between straight line method and diminishing balance method of depreciation | Depreciation and Fluctuation ✌🤔

Through the medium of this article, we are going to tell you the difference between the 3 important accounts with the Depreciation Account. Like  Differences between Depreciation and Fluctuation,  Depreciation Account and Provision for Depreciation Account,  Straight Line Method, and Diminishing Balance Method.

It is very important for the point of view of your exam. So, kindly read it carefully and suggest me for the next post topic which you want to read from this blog.

Differences between Depreciation and Fluctuation

Depreciation	Fluctuation
Depreciation is charged on fixed assets.	Fluctuation is not charged on fixed assets.
It is expenses of the concern	It may be profit & Loss of the concern.
It is charged on fixed assets.	It is charged on current assets.
It is shrinkage in the value of fixed assets.	It is a rise or fall in the value of assets.
It is a permanent process of accounting.	It is a temporary process of accounting.
It indicates the loss of fixed assets.	It may indicate the profit or loss of the fixed assets.
It Is charged on fixed assets throughout its Life.	It may be charged at any time during its life.
It is charged continuously on fixed assets.	It is not charged continuously on fixed assets.

Differences between Depreciation Account and Provision for Depreciation Account

Depreciation Account	Provision for Depreciation Account
The balance of the depreciation account is to be taken as the depreciation for that accounting period.	The balance of provision for the depreciation account does not represent the depreciation of that accounting period.
The account takes place in the profit and loss account. But not in the balance sheet of an accounting period.	The account takes place in the balance sheet. But not in the profit and loss account.
The amount of depreciation on the fixed assets for an accounting period may be fixed or gradually decreased.	The amount of provision for depreciation is gradually increased during the life of the assets.
The balance of the depreciation account is transferred to the manufacturing/profit and loss accounts or income and expenditure accounts.	The balance of provision for the depreciation account is gradually increased year after year until the asset account is closed.
The balance of the depreciation account is treated as an expense and it has always a debit balance.	The balance of provision for depreciation account is treated as the reduction of value of assets and it has always a credit balance.
It shows always a debit balance before transfer to the related account.	It shows always a credit balance before transfer to the related asset accounts.

 Differences between Straight Line Method and Diminishing Balance Method

Straight Line Method	Diminishing Balance Method
The rate and amount of depreciation are always equal under this method.	The amount of depreciation is gradually decreased in the passage of life.
The amount of depreciation is to be calculated by a simple formula.	The amount of depreciation is to be calculated by a harder formula.
The value of an asset may be reduced to ‘zero’ at the end of the life of the asset.	The value of an asset never is reduced to ‘zero’ at the end of the life of the asset.
It is not based on scientific theory, but it is easy to understand and simple to calculate.	It is based on scientific theory, but it is not easy to understand and simple to calculate.
The method is applicable to leasehold property, patent rights, trademarks, copyright, etc.	The method is applicable to buildings, plants, and machinery, furniture, motor car, etc.
It is not approved by the Income Tax Authority.	It is also approved by the Income Tax Authority.
The depreciation of an asset is always charged on the cost price of the asset.	The depreciation is charged on the opening balance of an asset at the end of each accounting period.
An equal amount of depreciation is charged for each accounting period. The total amount of expenses relating to an asset is increased on passage of time.	The amount of depreciation is gradually decreased and repair charges on the asset are gradually in
When further assets are purchased, recalculation of depreciation is necessary.	When further assets are purchased, recalculation of depreciation is not necessary.
The method is most appropriate when an asset is used uniformly from time to time.	The method is suitably used on assets that depreciate slowly and have a large scrap value.

What is Fluctuation?

Fluctuation is the change of price for the changes of demand and supply of goods or assets without any increase or decrease of utilities.

What do you mean by Amortisation?

Amortisation means to show loss in the value of intangible assets.

What is the example of intangible assets?

Like Goodwill, Patrnt, Copyright, Prelimenary Expenses, etc.