The choice of the depreciation method that the Two Brother’s Moving Company will depend on factors such as the type of asset, number of years in service and the associated production output. Machinery products such as vehicles undergo wear and tear, which contributes towards the loss of value of an asset over time. The company has purchased vehicles and uses them over a certain period before selling off, suggesting that wear and tear are some of the factors that the accountant could take into consideration. Also, the company uses the acquired assets to generate output measured in terms of miles. Based on these measurements, it is possible to use the units of production method of estimating depreciation as the accountant can determine the asset’s loss of value based on its actual use. This method is especially useful when attempting to establish a loss of value that results from heavy use of equipment that eventually wears it out as opposed to depreciation caused by aging.
On the other hand, other methods of depreciation such as the straight line and the double-declining balance method are useful when estimating the loss of an asset's value over several years and frequency of use over some time respectively. The chief accountant for the Two Brother's Moving Company must consider whether the vehicles will be used equally over the planned period. When age is the factor of depreciation, the appropriate method for determining an asset’s loss of value is the straight-line method (Adah, 2014). The declining-balance method, on the other hand, is useful when the asset is more likely to be utilized more in its early years and less as time goes by resulting in a lower depreciation rate over a specified period. Overall, the choice of depreciation estimation method not only depends on the type of asset but also on the objectives of estimating its loss in value.
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References
Adah, A. (2014). Straight line method of depreciation and financial information quality of nigerian service companies. International Journal of Finance and Accounting Studies , 2 (2), 1–7.
