Depreciation Methods and Their Significance in Accounting

This report provides a comprehensive overview of depreciation methods and their significance in financial reporting. It discusses key considerations such as the acquisition value of assets, the date assets are placed in service, and salvage value. The report details the three primary depreciation methods: straight-line, unit of production, and double-declining balance, emphasizing the importance of choosing the appropriate method and depreciation rate. It references key accounting principles and provides valuable insights into how these methods impact financial statements and asset valuation, making it a useful resource for students studying finance and accounting. This report is available on Desklib, a platform offering AI-based study tools and resources.

Depreciation refers to the reduction in the cost value of the fixed assets according to the
depreciation method used. The aim is to allow the provision to be made equal to the amount of
cost of fixed assets so that companies does not requires to expend much to purchase the new
machine. (Hussey and Ong, 2017). Things to be considered for depreciation are:
Acquisition value of the asset: This value refers to the cost of the assets and paid at the time of
buying the assets. There various things to be consider while determining the actual cost of
acquisition of the assets such any expenditure occurred to bring the fixed to the place of
operation will added to the cost of assets but any small repair and maintenance will not be added
to the cost of the asset (Bebbington, Gray and Laughlin, 2001).
Date when the asset is placed in the service: The date when the asset is first put to use is the
starting date of depreciation. Stock resister must be maintained in order to record this data.
Salvage Value: Fixed assets are recorded at the historical cost basis i.e. at their purchased value
and some assets left with some value after complete depreciation has been provided this is
termed as salvage value.
Depreciation Method and rate: There are mainly three methods of depreciation they are:
 Straight line method
 Unit of production method
 Double-declining balance method
It must be decided by the management that which method has to be used and how much
rate of depreciation is to be applied on each asset (Bebbington, Gray and Laughlin, 2001).

References
Bebbington, J, Gray, R. and Laughlin, R. 2001. Financial Accounting: Practice and Principles.
Cengage Learning EMEA.
Hussey, R. and Ong, A. 2017. Corporate Financial Reporting. Springer.