Estimated scrap value Amount of depreciation per year = Estimated useful life of the asset in years , , – , , , = = ` , per year = When it is plotted on a graph for years, it appears as follows: Depreciation Amount ` Year , , , , , , Merits Following are the merits of straight line method of depreciation: (a) Simple and easy to understand Computation of depreciation under this method is very simple and is easy to understand. (b) Equality of depreciation burden Under this method, equal amount of depreciation is debited to the profit and loss account each year. Hence, the burden of depreciation on the profit of each year is equal. (c) Assets can be completely written off Under this method, the book value of an asset can be reduced to zero if there is no scrap value or to the scrap value at the end of its useful life.
Thus the asset account can be completely written off. (d) Suitable for the assets having fixed working life This method is appropriate for the fixed assets having certain fixed period of working life. In such cases, the estimation of useful life is easy and in turn it helps in easy determination of rate of depreciation. Limitations Following are the limitations of straight line method of depreciation: (a) Ignores the actual use of the asset Under this method, a fixed amount of depreciation is provided on each asset by applying the predetermined rate of depreciation on its original cost.
But, the actual use of the asset is not considered in computation of depreciation. Accountancy (b) Ignores the interest factor This method does not take into account the loss of interest on the amount invested in the asset. That is, the amount would have earned interest, had it been invested outside the business is not considered. (c) Total charge on the assets will be more when the asset becomes older With the passage of time, the cost of maintenance of an