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Depreciation Methods For Wasting Assets: Name:Syed Zain ROLLNO:19351 Subject:Auditing Teachers Name: Madhura Maam

This document discusses different types of depreciation methods for wasting assets. It defines wasting assets as those that lose value over time, such as vehicles, buildings, and machinery. It then explains different depreciation calculation methods that can be used for different types of wasting assets, including the straight-line method for buildings, double declining balance method for vehicles, and units of production method for machinery. The advantages of owning wasting assets are also discussed, such as tax savings from depreciation claims and lower long-term costs than leasing. Maintenance costs and lack of initial capital are identified as disadvantages.

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Syed Zain
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23 views12 pages

Depreciation Methods For Wasting Assets: Name:Syed Zain ROLLNO:19351 Subject:Auditing Teachers Name: Madhura Maam

This document discusses different types of depreciation methods for wasting assets. It defines wasting assets as those that lose value over time, such as vehicles, buildings, and machinery. It then explains different depreciation calculation methods that can be used for different types of wasting assets, including the straight-line method for buildings, double declining balance method for vehicles, and units of production method for machinery. The advantages of owning wasting assets are also discussed, such as tax savings from depreciation claims and lower long-term costs than leasing. Maintenance costs and lack of initial capital are identified as disadvantages.

Uploaded by

Syed Zain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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DEPRECIATION METHODS

FOR WASTING ASSETS


NAME:SYED ZAIN
ROLLNO :19351
SUBJECT:AUDITING
TEACHERS NAME: MADHURA MAAM
INTRODUCTION

• Auditing is a systematic process.It is a logical and scientific procedure to examine the


accounts of an organization for their accuracy.There are rules and procedures to follow.The
auditor must completely satisfy himself with the accuracy and authenticity of the statements.
• Auditing can be defined as the on-site verification activity such as inspection or examination
of a process or quality system to ensure compliance with requirements. An audit can imply
to an entire organization or might be specific to a function or process
• Audits are performed to ensure that financial statements are prepared in accordance with
relevant accounting standards and to ensure that transactions are represented fairly and
accurately.
• The basic principles of auditing are Confidentiality, Integrity ,Objectivity,
Independence, Skills and competence ,Work perfomed by others,
documentation, planning, audit evidence etc
• Auditing is important as it provides credibility to a set of financial statements
and gives the shareholders confidence that the accounts are true and fair. It
also helps to improve a company‘s internal controls and systems.
• There are three main types of audits: External audits , Internal audits and
Internal revenue Service(IRS) audits
WASTING ASSET

• A wasting asset is a type of asset whose useful life is limited, and its value
decreases over time, Examples of which include fixed assets like vehicles,
plant, property and equipment or financial instruments like options.
• In the financial markets the term refers to options contracts since the contract
will continually lose time value after purchase
TYPES OF WASTING ASSETS

• Factory/buildings/ office furniture:


These types of fixed assets are distributed equally over their useful life. The
straight line distribution method is used in this. It is the simplest method of
calculating depreciation,and the depreciation expense is the same each year
evenly spread over the years
Depreciation= Cost paid-Selling price/Useful life
VEHICLES

• Vehicles like cars or trucks are generally used heavily in the initial years and
the depreciation charged will also be heavy. We will use the double-declining
method in this case which is similar to the straight line method but the only
difference is that the depreciation rate is twice of the first method. It assumes
that the rate of depreciation of equipment is higher in the initial years as the
machine is used more initially
• Depreciation- Beginning Book value x Rate of depreciation
• Rate of depreciation- 100%*2 / Useful life
MACHINERY

• Machines/Production equipment and the depreciation is calculated on the


basis of the number of units produced and are depreciated by the UNITS OF
PRODUCTION METHOD.
• Depreciation – (No. Of units produced/Life in number of units) X (cost-
selling price)
OPTIONS

• Option is a type of instrument which allows the owner of a option to buy or


sell a share at a certain price called the strike price.
• The strike price can be found by estimating the FMV( Fair market value) of
the stocks which depends on factors such as:
Difference between the strike price and the current price of the stock
Options also have an expiry date with them where concept of time decay comes
into play, Closer the expiry date lesser the probability of the owner making a
profit, On the day of expiry the value of option becomes zero
ADVANTAGES OF WASTING ASSETS

• The primary advantage of owning an asset is its OWNERSHIP, and the fact
that owning an asset costs much less than LEASING in the long run
• Tax savings can be made by claiming depreciation against the equipment
bought
DISADVANTAGES

• Buying an asset may not be possible for a business with low capital if the
initial cost of an asset is high
• The maintenance cost of an asset may be quiet high especially in its later
stages
CONCLUSION

• Most of the assets we think of are Wasting assets cause they depreciate in value
after some time and usage. It is upto the analyst to understand the asset and it’s
usage to determine the method to decrease the value of depreciation over time
• A business must aim to invest in processes to ensure that it’s assets are
Renewable, Recycable and Sustainable
• Wasting assets are well worth the initial investment as it yields substantial profits
for the company.

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