Depreciation continues to be one of the most controversial, difficult, and important problem areas in accounting. Required:
Question:
Required:
a. Explain the conventional accounting concept of depreciation accounting. b. Discuss its conceptual merit with respect to
i. The value of the asset
ii. The charge(s) to expense
iii. The discretion of management in selecting the method
c. Explain the factors that should be considered when applying the conventional concept of depreciation to the determination of how the value of a newly acquired computer system should be assigned to expense for financial reporting purposes (ignore income tax considerations).
d. What depreciation methods might be used for the computer system? Describe the advantages and disadvantages of each.
Step by Step Answer:
a The conventional concept of depreciation accounting usually is defined as a system of accounting that aims to distribute the cost or other basic value of tangible capital assets less salvage if any ...View the full answer
Financial Accounting Theory and Analysis Text and Cases
ISBN: 978-1118582794
11th edition
Authors: Richard G. Schroeder, Myrtle W. Clark, Jack Cathey
Related Video
Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.
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