WAEC Accounting 2016 Theory — Question 4

Model answer

(a) Depreciation of Assets: This can be defined as the wear and tear of assets as a result of consumption. It is the allowance made for replacement of assets. (b) Causes of depreciation: i. Wear and tear of asset ii. Passage of time iii. Obsolescence in technology (c)(i) Straight line: This is a method of depreciation by making equal allowance is depreciation over the usage life of the asset. It is calculated thus: Depreciation = (Cost of asset - Residual value) / Estimated Usage life (ii) Reducing Balance Method: This is a method of depreciation in which amount charged for the year is based on a particular percentage based on the net book value of the asset. (iii) Revaluation Method: This is the method of depreciation by which the net book value of the asset is revealed at the land on each period to know the amount that will be charged for deprecation. The difference between the beginning value and the year-end value is charged as depreciation.