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in straight line method we calculate depriciation on first value of asst for all over financial years. And in diminishing balance method we calculate on current value of asset after previous depriciation deduction.
In the straight line method, we calculate the depreciation with a fixed rate. Every year same depreciation is deducted from the fixed asset.
As per written down value method, we calculate the depreciation on original cost in first year. Next years' depreciation will be calculated on the amount which we got after deducting previous year depreciation. So, every year's depreciation amount will decrease.
There are some parameters can be used in determining which depreciation method to follow:
For instance, a car company would have a production line that involves automated and heavy machinery. These would have had an initial value based on when they were purchased from the company that provided them. However, because of usage in the course of operations, this value would progressively decline. Another factor that can affect this calculation is technological progress as machinery that is ten years old would certainly be far less in value than similar machinery that has developed and is sold at the current time.
Also, when we apply for a laon, the written down value would influence the bank's decision based on how much our assets worth.
