Accounting

Fixed assets represent the backbone of long-term operational capacity in nearly every industry—from heavy manufacturing plants to technology companies with extensive digital infrastructure. Over time, the value of these assets can change dramatically due to inflation, market volatility, scarcity of replacement components, significant technological leaps, or shifts in demand for specialized equipment. In many regions, especially in emerging markets with high inflation or rapidly changing economic environments, the recorded historical cost of fixed assets may no longer reflect their economic reality.… Read more

Choosing the right depreciation method is crucial for businesses to ensure accurate financial reporting, tax planning, and asset management. Different methods suit different types of assets, industries, and financial goals. This article explores the factors influencing the choice of depreciation method and compares the most commonly used approaches. Under global accounting standards—including IAS 16 (IFRS) and ASC 360 (US GAAP)—companies are required to select a depreciation method that reflects the pattern in which the asset’s future economic benefits are consumed.… Read more

The Sum-of-the-Digits Method (also known as the Sum-of-the-Years-Digits Method or SYD Method) is an accelerated depreciation technique that allocates higher depreciation in the early years of an asset’s life and gradually reduces it over time. This method is particularly useful for assets that lose value more quickly in their initial years, such as vehicles, computers, and machinery. In modern accounting practice, accelerated depreciation methods play a strategic role in matching expenses with economic usage patterns.… Read more

The Machine Hour Method is a depreciation technique that allocates an asset’s cost based on actual usage rather than time. Instead of charging a fixed depreciation amount each year, this method calculates depreciation based on the number of hours a machine is used. This ensures a fairer distribution of expenses, particularly in businesses that rely on machinery for production. Below is a detailed example of how to calculate and record depreciation using the Machine Hour Method.… Read more

The Machine Hour Method is a production-based depreciation technique that allocates an asset’s cost according to how intensely it is used. Unlike time-based methods such as Straight-Line or Reducing Balance, the Machine Hour Method links depreciation directly to output capacity. This makes it particularly suitable for manufacturing environments, engineering workshops, mining operations, printing presses, textile mills, and any industry where machine productivity determines economic benefit. Under IAS 16 Property, Plant and Equipment, depreciation must reflect the pattern in which the asset’s future economic benefits are consumed.… Read more

The Reducing Balance Method (also called the Declining Balance Method) is one of the most widely used accelerated depreciation techniques across global accounting systems. Unlike the Straight-Line Method — which spreads asset costs evenly across years — the Reducing Balance Method applies a consistent depreciation rate to the asset’s diminishing book value. This naturally results in higher depreciation in the early years and lower depreciation in later years, providing a more realistic representation for assets that lose economic value rapidly.… Read more

Businesses rarely purchase all their fixed assets at the beginning of a financial year. Instead, acquisitions often occur gradually — due to operational demands, machinery failure, expansion projects, or strategic investment decisions. When an asset is acquired mid-year, accountants must ensure that depreciation is allocated fairly and accurately. Incorrect depreciation can distort profit, inflate expenses, or misrepresent asset values on the balance sheet. Therefore, prorated depreciation is not merely a calculation; it is a compliance requirement under both IFRS and GAAP, and a crucial component of reliable financial reporting.… Read more

When a business acquires an asset partway through an accounting period, it cannot simply apply full-year depreciation. Instead, the depreciation must be prorated so that only the portion of the year in which the asset was actually available for use is expensed. This ensures financial accuracy, prevents overstating depreciation, and aligns with global accounting standards such as IFRS and U.S. GAAP. This expanded article provides a comprehensive explanation of partial-year depreciation, formulas, IFRS references, GAAP comparisons, examples, journal entries, schedules, and real-world business implications.… Read more

The Straight-Line Method is the most widely used method of depreciation in accounting. Its simplicity, predictability, and compliance with major accounting frameworks—such as IFRS (IAS 16 Property, Plant and Equipment) and U.S. GAAP (ASC 360 Property, Plant, and Equipment)—make it the default choice for many businesses across industries. The method spreads an asset’s depreciable cost evenly over its useful life, offering consistency in financial reporting, budgeting, and tax planning. This expanded guide explains not just how the Straight-Line Method works, but also why it is preferred, how it compares globally, and how businesses use it in real financial decision-making.… Read more

Depreciation is one of the most important concepts in financial accounting and corporate reporting. It determines how the cost of long-term assets—such as buildings, machinery, vehicles, and technology—is allocated over the periods in which those assets generate economic benefits. Because not all assets lose value in the same way, businesses must choose from several depreciation methods, each designed to reflect a different pattern of asset consumption. Selecting the correct depreciation method not only affects the income statement and balance sheet, but also has implications for taxation, asset management, budgeting, and investment planning.… Read more