The Effect Of Depreciation On Income Statement Reporting

The Effect Of Depreciation On Income Statement Reporting

ABSTRACT

In this exploration work named the effect of deprecation on the income statement of with particular reference to United bank for Africa( UBA) Plc. The experimenter examined the effect of deprecation on net income of United bank for Africa( UBA) Plc. Caught on the correlation between deprecation and total asset of United bank for Africa( UBA) Plc. estimated the goods of deprecation on the profitability of United bank for Africa( UBA) Plc. Caught on the relationship between deprecation and return on asset of United bank for Africa( UBA) Plc. Data for the study was sourced from Secondary sources of data Collection. Which includes; Journals, and other applicable accoutrements relating to the area of my disquisition will be review and periodic reports of United bank for Africa. expansive literature review was carried out on the direct literature and circular literature on books, journals and once workshop. The variables used in this study are; deprecation, Net Income, Total Asset and Return on asset. The experimenter made use of Statistical Package for Social lores( SPSS) in assaying the data collected from the periodic reports and account of the bank. At the end the experimenter set up out that deprecation affects income statement reporting of UBA, Enugu to a large extent. It was also obseved that deprecation affects the earning per share of UBA, Enugu. The experimenter inversely discovered that there’s significant relationship between deprecation and return of equity of UBA, Enugu. The experimenter observed that deprecation affects the return on investment of UBA, Enugu to a greate extent. Grounded on the findings the experimenter recommends that Organizations should endeavour to maintain their professional canons of conduct and ethical considerations as it enhances the conditioning of internal adjudicator thereby barring inspection anticipation gap. There should be inspection education among the stakeholders of different associations. This is to insure that these stakeholders are enlightened on the happenings in the associations especially as respects to auditing. The advice of adjudicators should always be taken into consideration in directorial decision timber.

Chapter One

Preface

Background of the Study

Okadigbo( 200412) defines deprecation account as a system of account which aims to distribute the cost of other introductory value of palpable capital means less salvage( if any) over the estimate useful life of the unit( which may be a group of asset) in a methodical and rational manner. It’s a process of allocation, not of valuation; deprecation for the times is the portion of the total charge under similar as system that’s allocated to the time.

According to Oloh( 200879) deprecation is an allocation of the entire cost of depreciable asset to the operating charges of series of financial period. deprecation is the prostration of the effective life of a fixed asset owing to use or obsolesces( Uguru, 20069).

It may be reckoned as that part of the cost of the asset which won’t be recovered when the asset is eventually put out of use. deprecation for income duty purposes is defined by theU.S treasuring Department Bureau of internal profit( Bulletin “ f ”) as a reason allowance for prostration wear and tear and gash of property used in the trade or business, including a reasonable allowance for fustiness.

Companies can use deprecation to manipulate earnings. A company can extend the use of its means by claiming a longer useful life. When looking at deprecation, it’s useful to compare deprecation practices of a company along with its peers. A company’s means may be outdated or in need of form if it’s cheapening means too sluggishly. All effects being equal, lower deprecation expenditure means advanced net income thus vacating periodic reports.

Mark- to- request in account refers to the valuation of means grounded on current request prices rather than book value. A major deformation occurs in deprecation grounded on an means book value versus the factual request value of an asset. For illustration, a company may have completely downgraded its land and structures indeed though these means have significant request values. This is a common circumstance with impalpable means similar as ensigns and trademarks. For counting purposes, these impalpable means have a finite life; still, in reality these means can be extremely precious having an impact on the performance of associations.

Statement of the Problem

The deprecation of means similar as outfit, structures, furnishing, exchanges,etc. causes a pot’s asset quantities, net income, and stockholders’ equity to drop. This occurs through an account conforming entry in which the account deprecation expenditure is debited and the contra asset account Accumulated deprecation is credited.

The quantum of the periodic deprecation that’s reported on the fiscal statements is an estimate grounded on the asset’s 1) cost, 2) estimated salvage value, and 3) useful life. deprecation should be allowed of as an allocation of the asset’s cost to expenditure( and not as a valuation fashion). In other words, the accountant is matching the cost of the asset to the ages in which earnings are generated from the asset.

The quantum of the periodic deprecation reported on the Nigerian income duty return is grounded on the duty regulations. Since deprecation is a deductible expenditure for income duty purposes, the pot’s taxable income( and associated duty payments) will be reduced by its duty deprecation expenditure.( In any one time, the deprecation expenditure for levies will probably be different from the quantum reported on the fiscal statements.)

It should be noted that deprecation is viewed as a noncash expenditure. That is, the pot’s cash balance isn’t changed by the periodic deprecation entry.( frequently the pot’s cash is reduced for the asset’s entire cost at the time the asset is acquired).

Objects of the Study

The broad ideal of this design work is to examine the effect of deprecation on the income statement of with particular reference to United bank for Africa( UBA) Plc. The specific objects of this exploration work includes the following;

1. To examine the effect of deprecation on net income of United bank for Africa( UBA)Plc.

2. To ascertain the correlation between deprecation and total asset of United bank for Africa( UBA)Plc.

3. To estimate the effect of deprecation on the profitability of United bank for Africa( UBA)Plc.

4. To ascertain the relationship between deprecation and return on asset of United bank for Africa( UBA)Plc.

Exploration Question

Grounded on the objects over, the experimenter developed the following questions;

1. To what extent does deprecation affect net income of United bank for Africa( UBA) Plc?

2. What are the correlations between deprecation and total asset of United bank for Africa( UBA) Plc?

3. To what extent does deprecation affect the profitability of United bank for Africa( UBA)Plc.

4. Is there any relationship between deprecation and return on asset of United bank for Africa( UBA) Plc?

Statement of Suppositions

Ho Depreciation doesn’t have any effect on net income of United bank for Africa( UBA)Plc.

H1 deprecation has significant effect on net income of United bank for Africa( UBA)Plc.

Ho There’s no correlation between deprecation and total asset of United bank for Africa( UBA)Plc.

H1 There’s significant correlation between deprecation and total asset of United bank for Africa( UBA)Plc.

Ho Depreciation doesn’t have any effect on the profitability of United bank for Africa( UBA)Plc.

H1 deprecation has significant effect on the profitability of United bank for Africa( UBA)Plc.

Ho There’s no relationship between deprecation and return on asset of United bank for Africa( UBA)Plc.

Ho There’s significant relationship between deprecation and return on asset of United bank for Africa( UBA)Plc.

Significance of the Study

This design work will be of immense significance to the following groups of people

The operation and staff of both UBA, Enugu. It’ll go to a great extent in enlightening them on the conception of deprecation and how it affects income statement reporting of UBA, Enugu.

The recommendations from this design work will suggest for other associations on the stylish approach to means deprecation.

Eventually scholars and other experimenters will widen their compass from the information contained in this design work.

Compass Of The Study

This design study on the effect of deprecation on income statement reporting is concentrated on a study of UBA, Enugu.

Limitations of the Study

These limitations were encountered by the experimenter in this exploration design.

FINANCE LIMITATIONS The experimenter demanded enough finances to carry out this exploration design, thereby leading to a slight detention in the successful completion of this exploration work.

TIME LIMITATIONS There wasn’t enough time on the part of the experimenter regarding the time demanded to attend lectures, do colorful assignments, prepare for degree examinations and also accomplish this exploration design.

DIFFICULTY IN GATHERING MATERIALS The experimenter had difficulty in gathering the accoutrements which made the process of carrying out this exploration design a bit delicate.

station OF THE Repliers The repliers weren’t really collaborative to the experimenter due to fear of oohing their secret to challengers.