Review and Reexamination of Depreciation Methods- on the emphasis of the purchase in the middle of year -
Asian Tax Journal Vol. 8 No. 1 (2007), pp. 9-26
Abstract
This study reviews the current method of depreciation especially on the property purchased during the accounting years. The depreciation methods applied to the property purchased in the middle of the year have lack in the comprehensively logical theory, which makes it difficult to compare financial statements among companies.To solve this confusion, we reviewed and reexamined the typical depreciation methods such as straight－line method, accelerated method and sum－of－the digit method and provided the reasonable and logical method to take.There are two kinds of methods in the depreciation of the asset purchased in the middle of the year ; depreciation as if the first day purchase(DFP), depreciation on the purchase day(DP). It is more desirable to apply the DP to all depreciation methods. Accelerated depreciation amount computed using DFP can have the different effect on the depreciated amount and gains(losses) on sale in the year of sale compared with the amount computed if it is held until the end of the useful life.The method of DP has the theoretical consistency which can be applied not only to sum－of－the－digit－method but also to other depreciation methods like straight line and accelerated depreciation.This will contribute to the useful comparison of depreciation and gains(losses) of sale among financial statements.
Keywords
- depreciation
- DFP
- DP
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