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Depreciation continues to be one of the most controversial,

Depreciation continues to be one of the most controversial, difficult, and important problem areas in accounting.
a. Explain the conventional accounting concept of depreciation accounting.
b. Discuss its conceptual merit with respect to: the value of the assets, the charges to expense, and the discretion of management in selecting the method.
c. Explain the factors that should be considered when applying the conventional concept of depreciation to the determination of how the value of a newly acquired computer system should be assigned to expense for financial reporting purposes (ignore income tax considerations).
d. What depreciation methods might be used for the computer system? Describe the advantages and disadvantages of each.

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a. Explain the conventional accounting concept of depreciation accounting.

-- The conventional accounting concept of depreciation accounting allows the company (or other purchaser of an asset) to decrease the carrying value of the asset, which is accomplished through depreciation. The company purchases the asset for X amount of dollars, and determines the number of years that the asset will live, which is the useful life of the asset. Management then selects a depreciation method that is best suited for the specific asset, or in some cases, the method that is required by the Internal Revenue Code, depending on the asset. The specific amount of depreciation each year, respective to the depreciation method, then becomes an expense for the company, and is carried over to the company's income statement as an expense, and the asset at historical cost (purchase price) is listed on the company's balance sheet, along with the total amount of accumulated depreciation (listed directly under the asset in the assets section of the balance sheet).

b. Discuss its conceptual merit with respect to: the value of the assets, the charges to expense, and the ...

Solution Summary

Depreciation continues to be one of the most controversial, difficult, and important problem areas in accounting.
a. Explain the conventional accounting concept of depreciation accounting.
b. Discuss its conceptual merit with respect to: the value of the assets, the charges to expense, and the discretion of management in selecting the method.
c. Explain the factors that should be considered when applying the conventional concept of depreciation to the determination of how the value of a newly acquired computer system should be assigned to expense for financial reporting purposes (ignore income tax considerations).
d. What depreciation methods might be used for the computer system? Describe the advantages and disadvantages of each.

BRIEFLY Discuss

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