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Recommendation: its advantages and disadvantages - Essay Example
Finance & Accounting
Pages 4 (1004 words)
Depreciation Name: Institution: Depreciation has been defined by scholars as the process of allocating costs of tangible assets over periods which the asset has benefitted the company (Peterson, 2002, P. 95). With time, the long-term assets of a company become obsolete while some lose value due wear and tear effects…
Recommendations To overcome the problem of unsystematic allocation of depreciable amount over the asset’s useful life, SASB has to find a method to allocate the total amount which is to be depreciated over each accounting period in the assets useful life. This can be done by use of either of two methods which include: straight-line method or residual method. Straight-line method is applied by allocating the depreciable amount equally to the whole useful life of the asset. The company should therefore, choose a constant annual depreciation charge, usually a percentage. This will be a systematic method since at no one point will the company fail to allocate the depreciation amount. The problem of revision of residual value on the other hand can be overcome by ensuring that the amount is revised on an annual basis with the written down value of the asset being used as the base of the percentage. Application of this method also requires that qualified professionals are employed to ensure that there are no inconsistencies involved in calculation (Alexander & Archer, 2008, P. 27). To the problem of revision of the depreciation method, I would recommend that SASB does not change the method that it decides to use between the two options. ...
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