Accounting B HW (NCA) - Tutorial HW Discussion question week 1 PDF

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22207 – Accounting B Discussion Questions

Evaluate the advantages and disadvantages of depreciation as an accounting concept – on balance, do you think the measurement of depreciation aids accounting practice?

Depreciation can be defined as the process of allocating the cost of non-current assets over its useful life. As a non-current asset is consumed, it converts to an expense and is thus depreciated. This depreciation can have a range of both advantages and disadvantages. The advantages of such a process stems from the application of the matching accounting principle whereby it ensures that revenue and expenses are recorded at the correct time. Both with the use of historical costing of assets (recorded at the price to acquire them), depreciation provides different methods which allow business to make choices in their management of capital cost. Alternatively, depreciation can cause a range of disadvantages in the accounting industry. This includes the ability to use depreciation for earnings management where a business may over depreciate an asset in order to reduce the tax responsibilities incumbent by law. Further, straight line depreciation may not be accurate in its evenly spread amount of depreciation if the business incurs a huge depreciation. Thus, a balancing act is required to weigh the advantages and potential disadvantages of depreciation as an accounting principle. I believe managing depreciation as an accounting practice helps to ensure correct accounting and profits are presented by the company....