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Depreciation Methods and Profit Impact

   

Added on  2020-05-28

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Running head: ACCOUNTING AND FINANCIAL MANAGEMENTAccounting and Financial ManagementName of the Student:Name of the University:Author’s Note:Course ID:
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1ACCOUNTING AND FINANCIAL MANAGEMENTTable of ContentsAnswer to Question C:.....................................................................................................................2References:......................................................................................................................................5
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2ACCOUNTING AND FINANCIAL MANAGEMENTAnswer to Question C:It could be observed that the method of depreciation has been changed from straight-lineto sum-of-years digits. In this context, Ji (2017) stated that the straight-line depreciation is thedefault method utilised for gradual reduction of the carrying amount of a non-current asset overits useful life. The method is formulated for depicting the consumption pattern of the underlyingasset over its economic life. This method is adopted widely in most of the organisation becauseof its simplicity in calculation and minimised number of errors (Kotas 2014). On the other hand,the sum-of-years digits method is an accelerated technique of depreciation, which is based on theassumption that assets are productive at the time they are new and there is decrease inproductivity, as they become old (Yussof, Isa and Mohdali 2014). According to the provided information in the case study, it could be identified thatMarion Mason has decided the depreciation method from the method of straight-line to the sum-of-years-digits. The primary goal of using the sum-of-years-digits method would be to reduce theoverall margin of profit in the next two years. This is because the profit would be shifted to 2018and 2019 for fighting with the expected slowdown in the economy. This could be representedwith the help of the following instance:Asset cost = $500,000Useful life of the asset = 5 yearsSalvage value = $50,000Based on the above figures, the contrast between profits by using the straight-linedepreciation method and sum-of-years-digits method is represented briefly as follows:
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