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Methods of Auditing Construction Equipment Depreciation - Essay Example
Author : mallie86
Finance & Accounting
Pages 4 (1004 words)
Methods of Auditing Construction Equipment Depreciation (Add (Add (Add Date) Methods of Auditing Construction Equipment Depreciation Introduction It is necessary for business concerns to record the consumption of fixed assets over time for the purpose of reflecting their reducing value and thereby analyzing actual state of affairs of the organization…
Methods of Calculating Depreciation The total amount of depreciation over the life of a fixed asset is computed by deducting the residual value from the total cost of the fixed asset. Some of the important techniques for calculating depreciation are given below. 1. Straight line depreciation Majority firms use straight line depreciation method as it assists the accounting department to avoid clerical complexity and make financial reporting easy. As Bragg (2002) points out, straight line depreciation method is based on the assumption that each accounting period of the asset’s life has an equal amount of depreciation (p.189). The procedures for calculating depreciation under straight line method include determination of useful life of the asset in years, determination of salvage value of the asset, deduction of the estimated salvage value from the purchase price of the asset, and finally substitution of identified valued into the equation. 2. Reducing balance method Under this method, a high annual depreciation is charged in the early years of an asset’s life and the charged annual depreciation progressively diminishes as the asset ages. To record this pattern of depreciation, an annual depreciation is charged as a fixed percentage of the written down value of the asset. ...