05-19-2006, 07:23 AM
For certain fixed assets, the benefits derived may be high in the early years, but may decline as the asset ages. For such assets, the reducing-balance method of depreciation would be appropriate insofar as it matches the depreciation expense with the pattern of benefits.
Once a particular method of depreciation has been chosen for a fixed asset, the method should be applied consistently over its life. It is only permissible to switch from one method to another if the new method provides a fairer presentation of the financial results and financial position.
At the moment in the method of reducing-balance depreciation you are only allowed to chare depreciation on NBV therefore your asset canât reach the value of ZERO. But if you charge depreciation in a measurable way then your asset value can reach to zero this method is similar to depreciation but have a different name.
Depletion is a similar to depreciation but applied to assets that are used up in a measurable way. The most important examples of this are oil reserves and mines.
The value of an oil reserve is reduced, not by the passage of time, but by the extraction of oil. Therefore the cost charged in the accounts each year is proportionate to the amount of oil extracted during that year. Depletion would be calculated in a similar way for other assets, the calculation basically being
(amount used in this period ÷ total amount available when asset was bought) à (cost of asset - estimated value of asset after full depletion)
now plz dont say it is not a depreciation
Once a particular method of depreciation has been chosen for a fixed asset, the method should be applied consistently over its life. It is only permissible to switch from one method to another if the new method provides a fairer presentation of the financial results and financial position.
At the moment in the method of reducing-balance depreciation you are only allowed to chare depreciation on NBV therefore your asset canât reach the value of ZERO. But if you charge depreciation in a measurable way then your asset value can reach to zero this method is similar to depreciation but have a different name.
Depletion is a similar to depreciation but applied to assets that are used up in a measurable way. The most important examples of this are oil reserves and mines.
The value of an oil reserve is reduced, not by the passage of time, but by the extraction of oil. Therefore the cost charged in the accounts each year is proportionate to the amount of oil extracted during that year. Depletion would be calculated in a similar way for other assets, the calculation basically being
(amount used in this period ÷ total amount available when asset was bought) à (cost of asset - estimated value of asset after full depletion)
now plz dont say it is not a depreciation
