1.1BACKGROUND OF THE STUDY
This research work is aimed at critically studying the different methods of depreciation and the impact on the profit ability of business enterprises.
The different methods of providing for depreciation have been posing problems to many people because the understanding and the use of these methods provide varying depreciation expenses on the same fixed assets. In view of this, when profit is reported using different methods for a period, the reported income will vary under the different methods.
Although most of the different methods of providing for depreciation expenses will be discussed in this work, the analysis is restricted to the straight-line, double decline balance, reducing balance and the sum of the years methods of depreciation provision.
Depreciation is a part of the cost of a fixed asset that is not receivable on disposed and is thus part of the cost of fixed asset consumed. During its periods of use by the firm. It is an expenses which is charged to the profit and loss account of a period before ascertaining the real net profit or loss of an enterprise.
According to Kermit Harson, depreciation is the expiration of plant assets quality of usefulness. In accounting, this term describes the process of allocating and charging the cost of the usefulness to the accounting periods that benefit from the asset’s use.
The International Accounting Standard (IAS) defined depreciation as the allocation of depreciable amount of an asset over its estimated useful life. Depreciation for the accounting period is charged to the income either directly or indirectly. Depreciable assets comprises a significant portion of the assets of an enterprise.
TABLE OF CONTENTS
Table of contentsvii
1.1background of the study1
1.2objective of the study2
1.3scope and limitation of the study3
1.4significance of the study4
1.5statement of the problem5
1.6identification of some terms7
2.0review of related literature 9
2.1the nature of depreciation accounting 9
2.2causes of depreciation10
2.3methods of calculating depreciation11
2.4evaluation of depreciation method14
2.5the concept of profit15
2.6definition of profit16
2.7cost of a plant asset18
2.8estimated life of an asset19
2.9terminal value of an asset 20
3.1Summary of findings21
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