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Which of the following statements are correct in respect of the straight-line method of charging depreciation? (i) It is easy to use. (ii) It is recognized by Accounting Standard 6 issued by ICAI. (iii) It realistically matches the cost and the revenue. (iv) It takes into consideration the interest on the amount invested in fixed asset. (v) This method is recognized by The Income Tax Act 1961.

Which of the following statements are correct in respect of the straight-line method of charging depreciation? (i) It is easy to use. (ii) It is recognized by Accounting Standard 6 issued by ICAI. (iii) It realistically matches the cost and the revenue. (iv) It takes into consideration the interest on the amount invested in fixed asset. (v) This method is recognized by The Income Tax Act 1961. Correct Answer (i), (ii), (iii)

The correct answer is option 1

Key Points

The features of the Straight-line Method are

  • The straight-line method of charging depreciation is easy to use.
  • It is recognized by Accounting standard 6 issued by ICAI.
  • It realistically matches the cost and the revenue.
  •  It takes into consideration the salvage value of the fixed assets.
  • The formula for calculating depreciation as per straight-line method is (Purchase price- Salvage Value)/ Estimated Useful Life of Asset.'
  • It is also known as the 'Original Cost Method' or 'Fixed Instalment Method'.

The straight-line method does not consider interest on the amount invested in fixed assets.

Important Points

Section 32(1) of the Income Tax 1961 says that depreciation should be computed at the prescribed percentage on Written Down Value of the asset.

​Hence statements i,ii and iii are the correct statements.

Related Questions

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