Accounting and Financial Management Assignment Solution Analysis

This assignment solution addresses a scenario involving a change in depreciation methods from straight-line to the sum-of-years-digits. The solution begins by defining and contrasting the two methods, explaining the rationale behind the change, which aims to reduce the overall profit margin in the initial years to combat an anticipated economic slowdown. It presents a detailed calculation comparing the depreciation expense under both methods, demonstrating how the sum-of-years-digits method accelerates depreciation in the early years and reduces it later. The analysis includes a table that shows the yearly depreciation amounts and the variation between the two methods. Ultimately, the solution explains how the change in depreciation method helps maintain consistent profits over time by reducing the depreciation expense. The document includes references to support the analysis.

Running head: ACCOUNTING AND FINANCIAL MANAGEMENT
Accounting and Financial Management
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ACCOUNTING AND FINANCIAL MANAGEMENT
Table of Contents
Answer to Question C:.....................................................................................................................2
References:......................................................................................................................................5

2ACCOUNTING AND FINANCIAL MANAGEMENT
Answer to Question C:
It could be observed that the method of depreciation has been changed from straight-line
to sum-of-years digits. In this context, Ji (2017) stated that the straight-line depreciation is the
default method utilised for gradual reduction of the carrying amount of a non-current asset over
its useful life. The method is formulated for depicting the consumption pattern of the underlying
asset over its economic life. This method is adopted widely in most of the organisation because
of 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 the
assumption that assets are productive at the time they are new and there is decrease in
productivity, as they become old (Yussof, Isa and Mohdali 2014).
According to the provided information in the case study, it could be identified that
Marion 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 the
overall margin of profit in the next two years. This is because the profit would be shifted to 2018
and 2019 for fighting with the expected slowdown in the economy. This could be represented
with the help of the following instance:
Asset cost = $500,000
Useful life of the asset = 5 years
Salvage value = $50,000
Based on the above figures, the contrast between profits by using the straight-line
depreciation method and sum-of-years-digits method is represented briefly as follows:

3ACCOUNTING AND FINANCIAL MANAGEMENT
Method of straight-line depreciation:
Straight-line depreciation = (Cost of asset – Salvage value of the asset)/ Useful life of the asset
Straight-line depreciation = ($500,000 - $50,000)/5 = $90,000
Method of sum-of-years-digits:
Sum-of-years-digits method = Depreciable base x (Remaining useful life of the asset/ Sum-of-
years-digits)
Sum-of-years-digits = n (n + 1)/2
Sum-of-years-digits = 5 (5 + 1)/2
Sum-of-years-digits (SYD) = 15
Years Depreciable base Left over useful life SYD Applicable percent Yearly depreciation
1 $450,000 5 5/15 33.33% $150,000
2 $450,000 4 4/15 26.67% $120,000
3 $450,000 3 3/15 20.00% $90,000
4 $450,000 2 2/15 13.33% $60,000
5 $450,000 1 1/15 6.67% $30,000
Statement showing changes in depreciation:
Years Straight-line depreciation Yearly depreciation (SYD) Variation
1 $90,000 $150,000 ($60,000)
2 $90,000 $120,000 ($30,000)
3 $90,000 $90,000 Nil

4ACCOUNTING AND FINANCIAL MANAGEMENT
4 $90,000 $60,000 $30,000
5 $90,000 $30,000 $60,000
After change in the overall procedure of depreciation, the amount pertaining to
depreciation would rise in the initial years. However, the declining trend could be observed in
the later years (Demski 2017). This would enable in maintaining the consistency of the overall
profits over the periods because of the reduction of the expense in depreciation over the periods.
Thus, Maria Mars has performed the role of modifying the method of depreciation from the
method of straight-line to the method of the sum-of-years-digits. The goal was to meet the
objectives of Peter Pringle, the general manager of Pringles Limited, to the accountant of the
organisation, Marion Mason.

5ACCOUNTING AND FINANCIAL MANAGEMENT
References:
Demski, J.S., 2017. Accounting and economics. The new palgrave dictionary of economics,
pp.1-6.
Ji, X.D., 2017. Development of accounting and auditing systems in China. Routledge.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Yussof, S.H., Isa, K. and Mohdali, R., 2014. An analysis of the gap between accounting
depreciation and tax capital allowance in Malaysia. Procedia-social and behavioral
sciences, 164, pp.351-357.