WAEC Accounting 2013 Theory — Question 3

Model answer

(a)(i) Depreciation can be defined as wear and tear of assets. It is the provision that is made for replacement of asset. Also, it is cost or part of the asset consumed for a particular period. (ii) Characteristics of depreciable assets: I. It must have a life span of more than one year. II. The cost of purchase of such asset must be material. III. It must not be part of the daily stock of an organisation. (b)(i) Straight line method: This involves using the cost of the asset and estimated scrap value and expected life span to calculate the depreciation. It is based on equal amount per year. It can be calculated thus: Depreciation = (Cost − scrap value) ÷ Estimated life span. (ii) Reducing balance: This is the method of depreciation based on the net value of the asset as at the year, i.e. the depreciation will be based on cost of the asset after deducting the depreciation of previous year. It is based on some percentage. (iii) Sum of the year digits: This has to do with adding the digits of the years in which an asset is expected to live.