Major limitations or disadvantages of straight line method of providing depreciation can be expressed as follows:
1. Faulty Assumption
Straight line method charges fixed amount of depreciation in each year because it assumes the same utility of assets in every year. It ignores the decreasing efficiency of the assets with the passage of time. So, it is completely based on the faulty assumption.
2. Loss Of Interest Or Revenue
Deducted amount of depreciation under this method is not invested or utilized outside the company. So, it does not gain any interest or revenue for the business.
3. Difficult To Estimate Life
It is another limitation of straight line depreciation method. It is very difficult to estimate the useful life of the assets. It is not logical to charge depreciation without knowing the functional life of the item or asset.
This method is not suitable for large companies with different operations, complex equipment and machines.
Also Read:
Also Read:
5. Not Suitable For Valuable Assets
Straight line method may not be suitable for valuable assets such as land and buildings.
6. Not Justifiable
The efficiency of assets gradually decrease and repairing costs goes on increasing with the passage of time. But depreciation amount remains the same in each year in this method. So, this method of depreciation is not justifiable.
