Financial Accounting Week 8 Course Project Assignment

Financial Accounting Week 8 Course Project - Assignment Example This paper tends to illustrate the different methods of depreciation and analyse the comparison between them with their effects in financial reporting in a business (Rezaee & Riley 2010). It is the widely used method in the United States by several companies and firms. This method charges equal amount of depreciation in each accounting period throughout the business period. It is applied by getting the difference between a company’s asset’s historical cost and its salvage value, the outcome is divided by the asset’s useful life. This method has a uniform and stable effect on business revenues and the asset value remains stable and is predictable throughout the accounting periods of the asset’s useful life (Cunningham & Cunningham 2004). This method assigns equal amount of expense to each unit of production of an asset or the service rendered by the asset. It involves determining the depreciation per unit of an asset by getting the difference between its historical cost and the salvage value, then dividing by the estimated units of production during its useful life. The company then determines the expense associated with the depreciation by multiplying the unit depreciation by the number of units produced (Benston 2006). This method of depreciation has varying effects on a company’s assets depending on the units of production. If the units of production are more, then the depreciation expense in the balance sheet will also be more, while less units of production leads to lesser depreciation expense (Rezaee & Riley 2010). Under this method, the amount of depreciation is determined by multiplying the depreciable costs by fractions based on the sum of the asset’s useful life. This method often results in write-offs than the straight-line method; however the write-offs are less than the double-declining method (Cunningham & Cunningham 2004). This method has an effect on the