EVALUATION OF DEPRECIATION METHOD USED BY MANUFACTURING FIRMS AND ITS EFFECTS ON PROFITABILITY A CASE STUDY OF BETA GLASS PLC, UGHELLI

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EVALUATION OF DEPRECIATION METHOD USED BY MANUFACTURING FIRMS AND ITS EFFECTS ON PROFITABILITY A CASE STUDY OF BETA GLASS PLC, UGHELLI

ABSTARCT

This project work concentrates upon evaluation of depreciation method used by manufacturing firms and its effect on profitability with special references to Beta Glass Plc Ughelli. Chapter one deals with background of the study, statement of the study, objective of the study, research question, and significance of the study and definition of terms. Chapter two is literature review where authorities on the subject matter (Depreciation) were discussed. These include the different method for calculating for depreciation. Chapter three contains the methodology of the research, under this chapter, the method employed to source for data is both primary and secondary source. The statistical tool employ is the use of tables and simple percentage method. Chapter four base on Data presentation and analysis of result it also contain the discussion of findings while chapter five entails the findings, summary, conclusion, recommendation and suggestions for further study. The researcher discovered that depreciation of assets is very important in an organization because it help to determine the current value of assets at when financial statement is prepared. Therefore, the researcher recommended that management of organizations should provide for depreciation on yearly basic and the service of expertise that have good knowledge of depreciation should be engage so that current value of assets can be easily ascertained.

TABLE OF CONTENTS

Title i

Approval ii

Dedication iii

Acknowledgement iv

Abstract vi

Table of contents vii

CHAPTER ONE – INTRODUCTION

1.1 Background of the study 1

1.2 Statement of problem 2

1.3 Objective of the study 3

1.4 Research Question 3

1.5 Significance of the study 4

1.6 Scope of the Study 4

1.7 Limitation of the Study 4

1.8 Definition of Terms 5

CHAPTER TWO – LITERATURE REVIEW

2.1 introduction 6

2.2 Depreciation as an Expenditure 6

2.3 Depreciation and Non-Depreciation Assets 6

2.4 Reasons for Providing for Depreciation 7

2.5 Method of Providing for Depreciation 8

2.6 Effect of Different Method of Depreciation on Profitability 13

2.7 Costing View on Depreciation and the Method of

Appropriating of their various Cost Unit 18

2.8 Accounting Entries in the Books 18

2.9 Factors to be Considered in Depreciation Accounting 19

CHAPTER THREE – RESEARCH METHODOLOGY

3.1 Research design 21

3.2 Population of the Study 21

3.3 Sample Size 21

3.4 Sampling Techniques 22

3.5 Questionnaire Administration 22

3.6 Validity of the Instrument 22

3.7 Reliability of the Instrument 23

3.8 Method of Data Collection 23

3.9 Method of Data Analysis 23

CHAPTER FOUR – DATA ANALYSIS AND INTERPRETATION

4.1 Introduction 24

4.2 Data Analysis 24

4.3 Discussion of Findings 34

CHAPTER FIVE – SUMMARY CONCLUSION AND RECOMMENDATION

5.1 Findings 36

5.2 Summary 37

5.3 Conclusion 37

5.4 Recommendation 38

References 40

Questionnaire 41

CHAPTER ONE

INTRODUCTION

Background of the Study

Most business have asset which are capital in nature e.g. building motor vehicle, furniture / fittings, etc. The cost of using these assets which benefits the business is written off to the profit and loss account over the life span of the assets is by the process called depreciation.

Depreciation is again justified is another way. The machine mentioned above contributes its quota towards productions just as an ordinary worker does and is being remunerated. The wage of such a worker is an expense to production which is charged against the trading, profit and loss account before the net profit is arrived at. Today, it is agreed that depreciation is an expense that must be recorded whether or not revenue is sufficient to absorb it. As a result of controversial issue on depreciation in accounting many ways of evaluating depreciation have evolved. An over view of the method of depreciation used by manufacturing fire are straight line methods, reducing balance method, sum of the year digit method, revaluation method etc.

Depreciation allows the spreading of the cost of fixed assets over their economic useful life. Depreciation is any method of attributing the historical or purchase cost of an asset across its useful life, roughly corresponding to normal wear and tear? Fixed assets are derecognized either on disposal or when economic benefit cease to accrue to a business. Therefore the only way in which costs of fixed assets are recognized in the profit and loss account is through charging depreciation.

Statement of the Research Problem

Depreciation in the value of asset is an expense. This is due to the use of asset in its provision is not optional but compulsory. It expenses is not deducted from the income of an accounting period, the ascertained profit will be wrong and will not disclose correct result of the business net profit.

But, a problem may arise in ascertaining the true profit of an organization due to the fact that there are different methods of providing for depreciation exposes in the book of the firm. The presence of those different methods may have various imparts which may lead to varieties in the reported net book value of an asset.

The use of the different depreciation methods by manufacturing firm in computing depreciation expenses bring about difference in the reported profit and net book value of assets in the balance sheet at the end of the year. This study is therefore embarked upon to investigate and report the effect of various method of depreciation on a firm net profit.

Objectives of the Study

The major purpose of the study is to evaluate the principles of depreciation provision using different methods and how depreciation computation using different methods affects the portability of firms.

Another purpose of this research work is to evaluate the impact which the various methods of depreciation provision have in the various methods of depreciation provision had in the profitability of firm.

Also, this research work will serve the purpose of evaluating how company uses depreciation to allocate the cost of a productive asset over the asset useful life.

Research Questions

What are the depreciation methods uses by firms?

What forms the division of the firm to use particular methods?

To what extent can it be said that firms use different depreciation rate for different assets?

To what extent can it be said that there is an effect on the firm’s profitability by the different assets?

How true can it be said that firm’s provision of depreciation really involves setting aside some money for the replacement of assets?

Significance of the Study

This project work will be of great significant to a lot of persons. It will enable existing manufacturing firm’s to know how to match depreciation cost of productive asset ( that has a useful life of more that a year ) to the revenues earned fro using the asset

It will enable external stakeholders to know how to access the validity of a company depreciation method by using various strategies and analytical tools.

This study will be useful for students and persons who are interested in knowing more about the subject matter.

This study can be basis for further study on the subject matter.

It is a ready tool for policy formulations.

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