Accounting theory and practice, Volume 2 (of 3) : a textbook for colleges and…

(a) Fixed Per Cent of Diminishing Value Method The chief merit of the variable percentage methods, in the eyes of their advocates, is the way they are automatically adjusted to the up-keep charges. The reader should study the graphs of these various methods as a means of comparing results. On the graph, page 158, it is shown that under the fixed per cent of diminishing value method the periodic depreciation charges are heavy in the beginning and decrease toward the end. It is argued that, inasmuch as up-keep costs increase as the depreciation charge decreases, this method automatically equalizes these two costs. This argument was examined in detail under the previous discussion of the straight line method. What was there set down applies equally here. The fixed per cent method is also based on service life by periods—a time basis rather than a service or output basis. Furthermore, it involves a complex calculation and is perhaps never applied with any degree of accuracy. Lawrence R. Dicksee prefers this method for handling depreciation on machinery. (b) Sum of Expected Life-Periods Method The objection of complexity of calculation to the method just discussed is overcome largely in the sum of expected life-periods method. Here the rate of decrease is more marked, but the method has the same general effect as the fixed per cent method. If the repair charges are handled, as suggested, by means, of pre-estimates, the results will not be equitable. If repairs increase with uniform regularity as the depreciation costs decrease, fair equality is secured. Otherwise the method has little to commend it. (c, d) Arbitrary Methods The two other methods under this main group, viz.: arbitrary with increasing amounts in the one case and decreasing amounts in the other, are not based on any orderly scheme of calculation and, having little logic behind them, are not to be relied upon. Ease of calculation is perhaps their only merit.