Blog: Mgt101 GDB Solution

Financial Accounting (MGT101)

Announcement of Graded Discussion Board (GDB)

Semester “Fall 2010”

“Subject Name (MGT101)”

This is to inform that Graded Discussion Board (GDB) will be opened according to the following schedule

Opening Date and Time: January 24 , 2011 At 12:01 A.M. (Mid-Night)

Closing Date and Time: January 27 , 2011 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

“ METHODS OF COMPUTING DEPRECIATION”

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

Discussion Question

“Would the use of accelerated method – Diminishing balance method of deprecation in the financial statements (Income statement and Balance sheet) be more conservative or less conservative than the current practice of using the straight-line method?” Briefly explain.

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Solution:

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Use of accelerated depreciation methods in the financial statements would be more “conservative” than the current practice of straight-line depreciation. Accelerated methods more quickly transfer the costs of plant assets to expense. Thus, in the immediate future, accelerated depreciation methods produce more conservative (lower) balance sheet valuations of plant assets and more conservative (lower) measurements of net income.
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The Accelerated method results in heavier depreciation through the early life of the asset. It is used by accountants to trim down a company’s tax bills as soon as possible. 

The Straight line depreciation method deducts an equivalent amount from a company’s earning every year all over the life of the asset.

So, the accelerated method is less conservative than the straight-line method because the straight line method reduces reported net income.