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Depreciation Methods and Bad Debts Provision: A Manager's Guide

Learn how to calculate depreciation using the reducing balance method and the significance of bad debts provision in financial management. Understand when to apply each method and the relationship with repairs and maintenance.

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Depreciation Methods and Bad Debts Provision: A Manager's Guide

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Presentation Transcript

  1. AC120 lecture 7 • Depreciation • Reducing balance method • Bad debts and provision for bad debts

  2. Methods of calculating depreciation expense • Reducing balance method • Depreciation expense based on net book value each year • Reducing depreciation expense each year • Bought motor vehicle originally for €16,000. Depreciation policy is 50% reducing balance

  3. Which method? • Management decide which is most appropriate • Reducing balance method appropriate where asset benefit to be consumed in the early years of its useful life • Straight line method appropriate where benefit is gained evenly over the life of the asset • Relationship with repairs and maintenance

  4. Bad debts • Management must decide • Accounting treatment of bad debt write offs • Provisions for probable future bad debts

  5. References • Wood, chapters 24, 25, 26 • Britton and Waterston, chapter 6 • Thomas, chapters 11 and 12

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