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ACCOUNTING FOR DEPRECIATION IN MANUFACTURING INDUSTRY

 

CATEGORY : Serminar

 

TABLE OF CONTENTS

Title Page

Approval page----------------------------------------------------------------------i

Table of contents------------------------------------------------------------------ii

CHAPTER ONE

1.0   Introduction -----------------------------------------------------------------1

1.1 Objectives of the study------------------------------------------------------2

1.2 Scope of the study-----------------------------------------------------------3

1.3 Theoretical Framework -----------------------------------------------------3

1.4 Conceptual Clarification -----------------------------------------------------5

CHAPTER TWO REVIEW OF THE RELATED LITERATURE

 

CHAPTER TWO LITERATURE REVIEW

2.0. DEFINITION of depreciation---------------------------------------------7

2.1. Causes of depreciation ----------------------------------------------------8

2.2. Need for Depreciation-----------------------------------------------------9

2.3. Depreciation and Taxation----------------------------------------------10

2.4. Method of depreciation---------------------------------------------------11

2.5. The advantages of depreciation-----------------------------------------12

2.6. Consequences of not providing for depreciation. -------------------15

2.7. Factors affecting the amount of depreciation ------------------------15

Chapter three: Summary, Conclusion and Recommendations

3.0 Summary of the Study-----------------------------------------------------17

3.1 Conclusion ------------------------------------------------------------------17

3.2 Recommendations----------------------------------------------------------18

References------------------------------------------------------------------------19

 

CHAPTER ONE

1.0   INTRODUCTION:

Every manufacturing company needs fixed asset in order to successfully carry business. The fixed assets unlike current assets are held over several period with the objective or earning revenue. Hence, the amount of money spent on their purchase is treated as capital expenditure. Accepted expenditure refers to the amount spend by an organization for the acquisition of a permanent assets

There are numerous examples of these types of assets some of which are land building, however, these comprise of the company’s factory building, offices and ware houses used for storage purpose, others include plant and machinery, fixtures and filings and equipment. These assets are used by industries or manufacturing organization for actual transformation or raw material into finished goods, the last but not the least is nature resources. these consist of mine queries oil coal and gas deposits.

These are some time called lasting assets. Assets since they became worthless when the deposit or resources have been depleted. In addition, they are normally consumed in the services of the business by effusion of time that is by wear and tear.

This fixed asset are normally recorded in their book at the. Cost price but it is assured that after making use of them for some periods, usually more than one financial year their value and efficiency decrease. After some years efficiency and productive capacity decline due to continuous usage. It reduces till when the assets becomes useless and need replacement.

Hence, it is a fat that asset should be depreciated from year to year when it is employed in the business. This reduction in the value of fixed asset is known in an accounting term as depreciation of fixed assets for which the work.

1.1 OBJECTIVES OF THE STUDY

The major purpose of this study is to enumerate different ways of accounting for depreciation in manufacturing industries and how depreciation computation using the different method affect the profitability of manufacturing forms. The treatment of depreciation under inflationary condition in auditing etc, will also determined.

This study is also meant to deal with other important feature, involved in depreciation accounting such as disposal of depreciation assets.

 

1.2 SCOPE OF THE STUDY

This is to enable the researcher have a closer view and make a complete study of the depreciation accounting in practice in these institution. The researcher used twenty-eight manufacturing firm that existed within 1986-1990 in order to enable her make a good sampling recently, there are more than that number of manufacturing firm in Nigeria.

 

1.3 THEORETICAL FRAMEWORK

One of the basic objectives of financial accounting is to calculate the true profit of loss from the operation of the enterprise for a particular period (moody, 1974). As per matching principle of accountancy the costs of the products must be matched with the revenue in each period. This principle indicates that if any revenue is earned and recorded then all costs whether paid or outstanding must also be recorded in books of account so that the profit and loss account could give a true and fair view of the profits earned or loss suffered during the period and balance sheet presents true and fair view of a financial position of the business ( Edwards, 1961).

The accounting concept of depreciation refers to the process of allocating the initial or restated input valuation ( cost or other basis) of plant and equipment’s to their useful life and charge the amount to revenue account as expenditure ( Woods, 20070

According to Akanni (1988) depreciation is charged on the fixed assets or those assets which are of material value having long life and are held to be used in business and are not primarily for resale or for conversion into cash. Usually, with the exception of land, fixed assets have a limited number of the years of useful life. Motor vans, machines, buildings and fixtures, for instance do not last forever. Even land itself may have all or part of its usefulness exhausted after few years. When a fixed asset bought is put out of use by the firm, that part of the cost that is not recovered on disposal is called depreciation.

According to ICMA Terminology. In simple words, depreciation can be defined as a permanent, continuing and gradual shrinkage in the book value of a fixed asset.

According to Matheson, 1984. Depreciation for the year is the portion of the total charge under such a system that is allocated to the year. Although the allocation may properly take into account occurrences during the year, it is not intended to the effect of all such occurrences (Anao, 1996)

 

1.4 CONCEPTUAL CLARIFICATION

When running a business, depreciation gives a more accurate picture of the financial state of the business by listing assets loss of value as an expense. That way, the initial cost of an item is divided over its useful life.

Identification: items that depreciate are assets used over a number of years that have a lower resale value after each year of use. Examples include vehicles, machinery, buildings and furniture. Land does not depreciate.

Accounting: Depreciation is listed as an expense in the accounting of a business. Doing this can more accurately measure profits as that item assists in the business during each year.

Annual Depreciation: The annual depreciation of an asset is a portion of its original cost. Straight-line depreciation subtracts the resale value from the purchase price and divides that by the number of years the item is expected to be used. Other depreciation methods have the item depreciate more quickly in the first few years and more slowly thereafter.

Tax Implication: Depreciation can be an income tax deduction for items used in business. The internal revenue service has strict guidelines on eligible items and conditions for deducting depreciation.

Currency: The other realm in which depreciation applies is in currency exchange, where a particular currency depreciates when it loses value in comparison to other currencies.

 

INSTRUCTIONS: Please, sit back and study the above article carefully. DO NOT copy word for word. Our aim of this article is to reduce the stress of moving from one school library to another all in the name of searching for articles. We are not encouraging any form of plagiarism. This service is legal because, all institutions permit their students to read previous projects, books, articles or papers while developing their own works.

 

 

 

 
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