TACC203 Financial Accounting and Reporting - Assignment Example

When depreciation is computed using this method, the depreciation charge throughout the useful life of the assets is equal. In this case, Long Board Limited purchased printing machine for $120,000 which had a useful life of 4 years. The deprecation charge is $30,000 (120,000/4) each year until the machine is sold. The accumulated depreciation is $60,000 in 2 years of usage. At the end of year 2 the company sold the machine for $50,000 cash which resulted in $10,000 loss on this sale since the book value of the machine at that time was $60,000(120,000-60000) as computed above.

This method of depreciation is suitable when the economic benefits derived from the assets are equal in every year throughout useful life. Using this method depreciation is charged on the opening balance of the assets by applying the same percentage every year. The depreciation in the early years is greater than the following years because the value of the assets diminishes over the period of time. This method of depreciation is suitable if the benefit derived from the assets are greater in early years than subsequent years.

Depreciation is calculated using this method when the economic benefits derived from assets are greater in the early years of its usage. In this case the machine is expected to be used in four years so we need to sum the digits from 1 to 4. In this method the depreciation is charged using the hours of production. It means when the production is higher the depreciation charge is also higher and vice versa. There is no fixed pattern of charging depreciation. It may be possible that the depreciation in the early years is lesser than the depreciation in the following years.

Depreciation can be computed as below; Research is defined by IAS 38 paragraph 8, as the original and planned investigation which the entity undertakes in search of new scientific or technical knowledge and understanding. According to IAS 38 paragraph 54-55, all research