Z Ltd depreciates its equipment using the straight-line method of depreciation. Y Ltd, which owns the same
Question:
Z Ltd depreciates its equipment using the straight-line method of depreciation. Y Ltd, which owns the same equipment, and has purchased the item on the same day from the same supplier as Z Ltd, uses the diminishing balance method. Are the depreciation charges of these two companies non-comparable? Explain.
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Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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