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Paper Topic:

Flo Choi

Flo Choi

2007

Flo Choi

Depreciation is the systematic and rational allocation of tangible asset over the periods benefited by the use of the asset (Smith et al 1998 . Flo Choi , as the manager of the company must take into consideration various factor in determining the periodic depreciation charge for asset acquisition or additions . The asset cost , residual or salvage value , useful life , and pattern of use are some of the factors Flo Choi must consider

The useful life of a property is one of the important factors to be

br considered in determining the appropriate depreciation method for a certain asset . Assets other than land have a limited useful life because of certain physical factor such as wear and tear , and functional factors like obsolescence . In addition , the pattern of use of an asset must be considered since it matches the cost of an asset against revenues for a certain period . There are various methods for allocating the cost of depreciable assets such as time-factor , use-factor , and composite-rate factor methods

Businesses can formulate their own depreciation rule . Flo Choi 's decision for a change in depreciation rule at the end of the year is acceptable . However , it is apparent that Flo Choi changed the company 's depreciation rule in to control the balance of their profit margin to avoid the probable increase in the interest rate of their borrowed fund

The recommendation of Flo Choi for a change in depreciation rule can increase the profit margin of the company for the year . In view of the fact that the property will have no depreciation charges for the month expenses would decrease which in turn will increase profit margin . Flo Choi 's recommendation is beneficial to the company since it will block the possibility of increased interest rate from the creditor but in turn will affect the fair presentation of the company 's financial statement

Reference

Smith , J . Skousen , F , Stice , E , Stice , J (1998 . Depreciation of non-current operating assets . Intermediate accounting (p . 486 . South Western

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