THE IMPACT OF DIFFERENT METHODS OF DEPRECIATION ON THE PROFITABILITY OF A COMPANY

ABSTRACT

The main purpose of this study is to measure the impact of different methods on the profitability of accompany the differ methods of providing for depreciation has been posing a problem to many people because the understanding and the use of these methods provide varying depreciation expenses on the sane fixed asset in viler of these when profit is reported using deferred methods part the service potential of a depreciable asset is exhausted in the cost revenue generating process each period the cost of these services meets be deducted from revenue of the period in order to measure the periodic income the expired cost must be recovered before a business is considered as well as at the beginning of the period and troublesome area in accounting. Deprecation was actually a cost of doing business executive tended to view depreciation as a matter of setting aside speciation during prosperous period for the replacement of depreciation assets. Chapter one we examined the need for the study, finding out what impact depreciation on the company’s profitability and tax.  It also looked into the significance of the study that is building funds for the study of their asset at the end of the existing asset useful life. The scope was ANAMMCO, Niger gas limited and premier Breweries Plc. Chapter two examined and reviewed the causes of depreciation that can be physical deterioration from wear and tear, the different method of calculating depreciation. Like straight-line method, revaluation methods etc. its impact on income statement and the evaluation of depreciable methods. Chapter three dealt with research design and methodology. Chapter four discussed the presentation analysis and interpretation of data the different method of depreciation and tested the hypothesis stated in chapter one. Chapter five was the findings, recommendations and the conclusion.

CHAPTER ONE

INTRODUCTION

PREAMBLE

This project work is aimed at critically studying the different methods of depreciation and their impact in the profitability of business enterprises. The different methods of providing for depreciation have been posing problem to many individual because the understanding and the use of these methods provide varying depreciation expenses on the same fixed asset. In view of this, when profit is reported using different methods for a period, the reported income will vary under the different methods. Although most of the different methods of providing for depreciation will be discussed in this work. Parts of the service potential of a depreciable asset is exhausted in the revenue generating process each period the cost these services must be deducted from revenue of that period. In order to measure the periodic income, the expired cost must be recovered before a business is considered. Depreciation is one of the most controversial and troublesome areas in accounting. Depreciation was actually a cost of doing business. Business executive tended to view depreciation as a matter of setting aside something during prosperous periods for the replacement of depreciable assets. When earnings are high, large amounts of depreciation might be recorded and when earnings were low or less provision for depreciation was recorded. Today, it is universally agreed that depreciation is an expenses that must be recorded whether or not revenue is sufficient to absorb it. Depreciation has been given different interpretations and meanings by various authors and experts in the accounting field as a result many definitions of depreciation exist as many as the authors and experts themselves. Some of the numerous definitions of the term depreciation as defined by many authors will be examined. The institute of chartered accountant of Canada defined depreciation as a proportionate charge of an expanse to an accounting period based the cost as other recorded value of fixed assets. Himmed Clan (third international congress on accounting defined depreciation as the price spreading the value of a fixed asset.

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