ACCOUNTING FOR DEPRECIATION IN MANUFACTURING INDUSTRY
For a manufacturing firm like golden Guinea plc to carry out its
business successfully and to meet its main objectives it needs among.
Other things fixed assets. The fixed assets unlike current assets are
held over several period wish the objective or earning revenue. Hence,
the amount of money spent on their purchase is treated as capital
expenditure. Accepted expenditure refers to the amount spend by on
organization of the acquisition of a permanent assets intended profits.
There are numerous example of these types of assets some of
which are land and building, however, these comprise of the company’s
factory building, offices and warehouses used for storage purpose,
others include pant and machinery, fixtures and fittings and equipment.
These assets are used by industries or manufacturing organization for
actual transformation or raw material into sleazier finished goods. The
last but not the least are nature resource. These consist of mine
queries oil coal and gas deposits.
These are some time called lasting assets. Assets since
they became worthless when the deposit or resources have been depleted.
In addition, they are normally consumed in the services of the business
by effusion of time that is by wear and tear.
This fixed assets are normally recorded in their book at
then cost pride, but it is assured that after making use of them for
some periods, usually more than one financial year their value and
For examples, after some years efficiency and productive
capacity decline continuous xxx it reduces a time when the assets
becomes useless and need replacement.
Hence, it is a fact that on asset depreciates from year to year when it is employed in the business.
This reduction in the value of fixed asset is known in
accounting term as depreciation of fixed assets for which the work is.
1.2 STATEMENT OF PROBLEM
Depreciation is a sort of expense used in determining the cost at a
real or capital asset in carrying out the operations of any
manufacturing firm or enter press, in order to determine and report the
real profit of an organization for the purpose of evaluating its
There are different methods of providing for this
depreciation expenses in the books of manufacturing firms and the
presence of these different methods of providing for deprecation have
varying impact which leads to variation in the reported profits and in
the net book value of assets stated in their financial statement of
Most people are not aware of these methods of providing for
depreciation and hence their resultant impact or affect on the reported
profit and the net book value of asset stated in the financial
statement, that they tend to pass erroneous judgment on the
profitability of one manufacturing firm or the performance comprises
between their reported profit in the financial statement, without regard
to the last element charged against revenue of which deprecation
expenses which is arrived at by different method is a very important
The use of the different depreciation methods by
manufacturing firm in computing depreciation expenses bring about
difference in the reported profit and in the net book value of asset
stated in the balance sheet as at the year end. This is the problem,
which this project it to investigate and provide answer to.
Depending on circumstances the company may use any method
but must be consistent because to principles of consistency is laid down
by the SSAP.
The relevant method a manufacturing firm chooses normally
depends on the management policies and practices on depreciation, for
instance depending on the circumstance facing a particular firm at any
given period, management will decide on which method of providing for
depreciation is appropriate in order to aim the optimum benefit.
Many factors are taken into consideration in determine the
useful like for an asset, which is very important feature in computing
depreciation expense. One of these factor is considering the use and
capacity of the asset and this varies in direct proportion with time.
1.3 OBJECTIVE OF THE STUDY
The major purpose of this study is to enumerate different ways of
accounting for depreciation in manfucturing industries and how
depreciation computation using the different method affect the
profitability of manufacturing firms. The treatment of deprecation under
inflationary condition in auditing e.t.c, will also be determined.
This study is also meant to deal with other important
feature, involved in depreciation accounting, such as disposal of
1.4 SIGNIFICANCE OF STUDY
This project will be significance to a lot of bodies which have been
having problem with depreciation and its accounting in general. It will
enable the shareholders of any manufacturing firm on enterprise to know
the impact of the usage of different depreciation methods in the
reported profit figure given to them by management of a company as a
result, know when the management has used a the to overstate its profit
figure present that notion that the company is profitable where as it
may not be.
It will also enable investors to value the share of the
company they will want to invest in since the management might believe
that the company is as profitable and as such give a wrong value to the
share of the company.
It will also be of importance to student and other who have
difficulties in understanding the topic on depreciation to have glimpse
of what depreciation and accounting is all about.
1.5 SCOPE AND LIMITATION OF THE STUDY
This study will be limited to the period of 1986 to 1990 (which is
five years study for the purpose of easier collection of data, even
thought the institution have operated for along period). This is to
enable the researcher have a closer view and make a complete study of
the depreciation accounting in practice in these institution. The
researcher used twenty – eight manufacturing firm that existed within
1986 -1990 in order to enable her make a good sampling recently, there
are more than that number of manufacturing firm in Nigeria.
Also this study will be limited to tangible assets such as
plant and machinery; it will also be limited to assets which are long
lived asset in the operation of a manufacturing firm this is because
depreciation is associated with fixed tangible asset and not the current