Hello I would like to know when is the suitable decision to use the right deprec

Question

Hello

I would like to know when is the suitable decision to use the right depreciation method of Straight line and (MACRS). I'm confusd when each is leading to a higher net present value

what I know, if the project is for less than 10 years and small(in millions), it is preffer to choose straight line method

if the project is in long term, more than 10 years with huge amount of capital(more than 1 billion) , it is preffered to work with MACRS

please correct and illustrare me.

I'm a chemical engineering student.

Explanation / Answer

The application of depreciation methods depends on the nature of asset specified. Straight line method of depreciation is the easiest to use and make accounting calculation very simple.Due to its simplicity, straight line method of depreciation is the most commonly used depreciation method.

Accounting principles require companies to depreciate its fixed assets using method that best reflects the pattern in which the assets are being used.Some fixed assets lose more value in initial years and in such a situation MACRS is more appropriate method than staright line method of depreciation.

Use of method of depreciation does not depend on the life and value of assets but it depends on the pattern of consumption of assets.For instance, if a company buy a new computer or smartphones for its employees, these types of assets naturally lose more value early in their life than they do later on. so it makes more sense to use MACRS in these cases.

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