Accounting For Depreciation In Relation With Fixed Assets - Samples

This reflection essay will be based on my learning experience in relation to the accounting for depreciation in the context of fixed assets. Prior to this assessment, two research proposals have been developed in relation to this topic and with the help of various analyses, it has been evaluated that depreciation is a type of expense for the organization and this should be marked every year in the financial statements. This also helps the company to analyse the current value of the assets along with the rate of depreciation which needs to be imposed (Epstein & McFarlan, 2011). Based on my experience and learning from previous assessments, I learned the significance and the necessity of depreciation in an organization. There are two types of assets current and fixed assets. Current assets are those which can be liquidated within the one year from purchase and fixed assets are those which take more than one year to be liquidated. Amongst the various measures for measuring the value of fixed assets, I have realised that conservative approach will help the organization gain the appropriate results as per the expectations. This approach provides clear and accurate information regarding estimating the value of the fixed assets (Kang & Zhao, 2010). Apart from this, I also learned that these approaches are capable enough to cover all the charges in relation to all types of other expenses which would generate clear outcomes in relation to financial statements. As per my opinion, depreciation is quite a useful thing in estimating the actual life of fixed assets and it leads to increase in the costs of those assets. Fixed assets are long-term tangible properties for organization which helps to generate revenues and to accomplishes the functionalities of organization in an appropriate manner. I realised that the concept of depreciations implemented with the view to increase fixed costs with the view to decrease the profit margin. With the help of depreciation, anticipated fixed costs are increased dramatically and organization could easily determine their profits that will also include the expenses of depreciation (Radu & Marius, 2011). On the basis of topic of the research proposal "accounting for depreciation in relation with fixed assets", I have analysed that various accounting entries need to be made to charge the fixed asset as an expense at the end of its life cycle. With the help of these entries, long time usage of the fixed assets could also be reflected. Depreciation is a charge which is imposed on the fixed asset in order to analyse its expected life. For a period of time, fixed assets could be used along with gradually decreasing its value. Along with this, I also realised that on one side depreciation is being charged to record the expense against fixed asset's cost where, on the other hand, revenues are also recorded which are originated from its utilisation. In my opinion, if whole depreciation has been charged in the first year of purchase of the asset then also revenues would be originated from its usage and those will also be reflected in the financial statements of the organization. As per my lea rning experience, this will create negative impact over the financial performance of the organization because revenues and the expenses will not match for the further time period and it will be against the matching principle. Thus, I have realised that charges of depreciation need to be recorded for all the years in which fixed asset has been used for generating revenues (Christensen & Nikolaev, 2013). While evaluating the previous assessments, I have realised that all these theories and concepts are just theoretical aspects which differs from the actual outcomes. Revenues cannot be generated with one asset irrespective of its nature i.e. current or fixed. Revenues are originated from the production process and this process indulges group of assets. Apart from this, I have also realised that the depreciation is an expense which is being charged against the cost of the asset in relation to the revenues. The same procedure is being followed for several years till the time, value of that particular asset becomes nil. In the absence of depreciation, whole cost of the fixed asset will be charged in the year of its purchase which will lead to decline in the rate of profits for the organization. In the year under which fixed assets have been purchased, profits of the company will be less in comparison to the past years and future years (Giarola, Shah & Bezzo, 2012). Further, in the next y ear, profits will gradually increase which will leads to mismatch concept. For adopting the principle of consistency, it is required to charge the depreciation against the cost of fixed asset in relation to maintaining the appropriate rate of profits and to show growth of the organization. With the help of this theory, organization will be able to attain its desired goals as well as organization will easily be able to attract the public for raising the capital (Kieso, Weygandt & Warfield, 2010). It is necessary to evaluate the factors of depreciation as it plays crucial role in understanding both terms i.e. concept of depreciation and the significance of depreciation.   Along with the factors, measures should also be evaluated which are required for evaluating the rate of depreciation which could provide maximum benefits to the organization. Following factors have been evaluated by me after analysing the above assessments: In my opinion, depreciation is linked to various issues such as it does not relate to the current value of the asset. Depreciation is charged on the past value of the asset in which it has been purchased irrespective of its current value. While making the company’s cash flow and other financial statements, depreciation becomes the major issue. Depreciation cannot be applied to the intangible assets and for amortization is being implemented over these assets with the help of straight-line method (Feng & Figliozzi, 2013). Thus, in my point of view depreciation plays crucial role in terms of maintaining the organizational profitability. Depreciation helps the organization to determine the life of asset and it is charged gradually in respect of its life period. Along with this, depreciation should be charged against the cost of the fixed asset and in the first few years of purchase of the asset, amount of depreciation should be charged more in comparison with the further years (Crosby, Devaney & Nanda, 2016).   Christensen, H.B. and Nikolaev, V.V., 2013. Does fair value accounting for non-financial assets pass the market test?.  Review of Accounting Studies,  18(3), pp.734-775. Crosby, N., Devaney, S. and Nanda, A., 2016. Which factors drive rental depreciation rates for office and industrial properties? Journal of Real Estate Research,  38(3), pp.359-392. Epstein, M.J. and McFarlan, F.W., 2011. Measuring the efficiency and effectiveness of a nonprofit's performance.  Strategic finance,  93(4), pp.27-35. Feng, W. and Figliozzi, M., 2013. An economic and technological analysis of the key factors affecting the competitiveness of electric commercial vehicles: A case study from the USA market.  Transportation Research Part C: Emerging Technologies,  26, pp.135-145. Giarola, S., Shah, N. and Bezzo, F., 2012. A comprehensive approach to the design of ethanol supply chains including carbon trading effects.  Bioresource technology,  107, pp.175-185. Kang, S.H. and Zhao, Y., 2010. Information content and value relevance of depreciation: a cross-industry analysis.  The Accounting Review,  85(1), pp.227-260. Kieso, D.E., Weygandt, J.J. and Warfield, T.D., 2010.  Intermediate accounting: IFRS edition  (Vol. 2). John Wiley & Sons. Radu, D. and Marius, D., 2011. Issues related to the accounting treatment of the tangible and intangible assets depreciation.  Annals of the University of Oradea: Economic Science,  1(2), pp.498-502. Rambaud, A. and Richard, J., 2015. The â€Å"Triple Depreciation Line† instead of the â€Å"Triple Bottom Line†: towards a genuine integrated reporting.  Critical Perspectives on Accounting,  33, pp.92-116. Warren, C.S. and Jones, J., 2018.  Corporate financial accounting. Cengage Learning.