Limitations of Straight Line Method

The Flaw in the Assumption of Equal Utility

The straight line method is simple, but its simplicity comes at a cost. The method assumes that an asset provides exactly the same amount of service or utility in each year of its life. This is rarely true in practice. A machine in its first year runs smoothly and produces at peak efficiency. By its fifth year, the same machine runs slower, breaks down more often, and produces lower-quality output. Charging the same depreciation in both years ignores this reality.

The Rising Burden of Repairs and Maintenance

The second limitation follows directly from the first. As an asset ages, its work efficiency declines. To keep it running, you must spend more on repairs and maintenance. A new machine may need only routine oiling and cleaning. An old machine may need major part replacements and frequent servicing.

Here is the critical accounting consequence. Under the straight line method, the depreciation charge is constant — say ₹10,000 every year. But the repair expense is small in early years and large in later years. The total charge against profit — depreciation plus repairs — is therefore not uniform. It is low in the beginning and high towards the end.

The Accounting Treatment Implication

The straight line method itself does not prescribe a separate journal entry for repairs. Repairs are recorded as a revenue expense in the usual way — debit Repairs Account, credit Cash/Bank. The point the textbook makes is about the combined effect on the Profit & Loss Account. In year 1, the total debit to Profit & Loss on account of the asset might be ₹12,000 (₹10,000 depreciation + ₹2,000 repairs). In year 5, it might be ₹18,000 (₹10,000 depreciation + ₹8,000 repairs). The profit shown in year 5 is unfairly reduced compared to year 1, even if revenue is the same. …