THE IMPACT OF DIFFERENT METHODS OF DEPRECIATION ON THE PROFITABILITY OF A COMPANY. (A CASE STUDY OF ANAMMCO MOTOR ENUGU STATE).

CHAPTER ONE

INTRODUCTION

PREAMBLE

This project work is aimed at critically studying the different methods of depreciation and their impact in the profitability of business enterprises.

The different methods of providing for depreciation have been posing problem to many individual because the understanding and the use of these methods provide varying depreciation expenses on the same fixed asset. In view of this, when profit is reported using different methods for a period, the reported income will vary under the different methods.

Although most of the different methods of providing for depreciation will be discussed in this work.

   Parts of the service potential of a depreciable asset is exhausted in the revenue generating process each period the cost these services must be deducted from revenue of that period. In order to measure the periodic income, the expired cost must be recovered before a business is considered.

          Depreciation is one of the most controversial and troublesome areas in accounting.

Depreciation was actually a cost of doing business. Business executive tended to view depreciation as a matter of setting aside something during prosperous periods for the replacement of depreciable assets. When earnings are high, large amounts of depreciation might be recorded and when earnings were low or less provision for depreciation was recorded. Today, it is universally agreed that depreciation is an expenses that must be recorded whether or not revenue is sufficient to absorb it.

Depreciation has been given different interpretations and meanings by various authors and experts in the accounting field as a result many definitions of depreciation exist as many as the authors and experts themselves.

Some of the numerous definitions of the term depreciation as defined by many authors will be examined.

          The institute of chartered accountant of Canada defined depreciation as a proportionate charge of an expanse to an accounting period based the cost as other recorded value of fixed assets. Himmed Clan (third international congress on accounting defined depreciation as the price spreading the value of a fixed asset.