Observation

Majority of the candidates attempted this question on fixed assets, causes of depreciation of fixed assets, methods of depreciation.  Candidates’ responses to these questions showed their understanding of the concept of assets and depreciation accordingly. Below are some of the suggested responses:
                                               
(a)        Fixed Assets:
These are resources owned by a business which are used for more than one year with no intention for resale.                               
           

3(b)      Causes of Depreciation:
                                       These include -

1. obsolescence / innovation;
2. wear and tear due to usage;
3. passage of time/effluxion of time;
4. exposure to element of weather;
5. inadequacy due to expansion / superfluity;
6. erosion / floods;
7. depletion or exhaustion of the assets;
8. earthquake;
9. thunder and lightning.

 

3(c)      Explanation of Methods of Depreciation:

1. Straight line: This method makes provision for equal amounts to be charged as depreciation for each year of the useful life of the asset. The amount of depreciation is ascertained by dividing the cost of the asset less its residual value by the number of the estimated useful life.
2. Reducing balance: This is where a fixed percentage of the value of the assets is charged to each accounting period after deducting the amounts previously provided. The amount of depreciation reduces every year.
3. Revaluation: By this method, the value of the asset is ascertained at the beginning of the period and revalued at the end of the period. The difference between the two amounts is charged as depreciation.