Majority of the candidates attempted this question and performed well in
the (a) and failed in the (b) and (c) part. The expected answers in (b) and
(c) include:
(b) Methods of providing for depreciation are:
Straight line/fixed instalment;
Reducing/Diminishing balance;
Revaluation;
Sum of the years' digit
Units of production.
(c) Reasons for making provision for depreciation are:
It represents the cost of service provided by the asset which
otherwise will have to be paid as rent or lease charges;
It provides a means of setting aside funds for the
replacement of the assets when they become old or non-
functional;
It serves as an internal means of generating funds to be
ploughed back into the business;
It helps to determine when an asset should be sold or
replaced;
It provides a guide as to what should be the disposable
value of an asset;
It provides a means of determining the profit or less when
an asset is disposed off.
