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Depreciation of Fixed Assets Blue Haulage Ltd prepares its final accounts to 31 December each year - Leaving Cert Accounting - Question 2 - 2013
Question 2
Depreciation of Fixed Assets Blue Haulage Ltd prepares its final accounts to 31 December each year. The company’s policy is to depreciate its vehicles at the rate o... show full transcript
Worked Solution & Example Answer:Depreciation of Fixed Assets Blue Haulage Ltd prepares its final accounts to 31 December each year - Leaving Cert Accounting - Question 2 - 2013
Step 1
Why would a company choose one method of depreciation over another?
Answer
A company might choose one method of depreciation over another based on factors such as:
- Financial reporting objectives – Different methods can yield different profit figures in the short term.
- Tax implications – Some methods allow for quicker expense recognition, impacting tax liabilities.
- Asset usage patterns – If an asset is expected to lose value more quickly in its early years, an accelerated depreciation method could be advantageous.
- Managerial preferences – Management might prefer methods that support long-term strategic goals in financial planning.