Act 1201 7200

Depreciation- The Development of an Accounting Concept
A Term Paper Report
Bangladesh University of Professionals

Depreciation- The Development of an Accounting Concept
Course Name: Intermediate Financial Accounting

Course Code: ACT 1201
Submitted by
MD. MAHBUB MURSHED RATUL
MD. ABDULLAH ALL SIDDIQUE
SABIT UL WASI
NAZNIN NAHAR KOLI
HASIBUL ISLAM RIFAT
SADMAN HASAN TAMIM
SAMIA ISLAM ILA
Submitted to
ZOBAIDA KHANAM
ASSISTANT PROFESSOR
Department of Business Administration in Accounting and Information Systems

Faculty of Business Studies
Date of Submission: 29 May 2024
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Acknowledgement
We sincerely acknowledge our debt to our course advisor, ZOBAIDA KHANAM, Assistant
Professor. Department of Business Administration in Accounting and Information Systems,
Bangladesh University of Professionals for her valuable counselling towards the improvement
of the report. Without his encouragement, this would never have been possible. We are
overwhelmed with gratitude to our course advisor as he helped us in terms of propulsion and
completing this term paper impeccably. The report is prepared only to meet academic purpose
not for any other reason.
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LETTER OF TRANSMITTAL
29th May 2024
Zobaida Khanam
Assistant Professor
Faculty of Business Studies
Subject: Submission of Term Paper
Dear madam,
We hereby submit our Term Paper, a part of the course Intermediate Financial Accounting (ALD
1201) on “Depreciation- The Development of an Accounting Concept" as per the given
instructions. We have tried to reach your expectations by making this term paper informative
with clarity. In the hope of garnering your acceptance and appreciation, which will inspire and
motivate us a lot, We have tried to make this term paper worth your while. We will be highly
obliged if you are kind enough to receive this term paper and provide your valuable judgement.
Regards,
On behalf of the Team
Md Abdullah Al Siddique
(23211408113)
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Executive Summary
This term paper delves into the multifaceted realm of depreciation accounting, tracing its
historical evolution, examining regulatory frameworks, exploring diverse methodologies, and
projecting future trends.
The paper begins by unraveling the origins of depreciation accounting, dating back to its early
recognition in accounting literature and its subsequent evolution alongside industrial
advancements. It sheds light on the emergence of regulatory bodies like the International
Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB),
which have played pivotal roles in shaping depreciation accounting practices globally.
A significant portion of the paper is devoted to analyzing the regulatory framework governing
depreciation accounting, with a specific focus on Bangladesh. By juxtaposing Bangladesh's
regulatory landscape with international standards, the paper elucidates the importance of
compliance and transparency in financial reporting.
The paper meticulously examines the evolution of depreciation methods, from traditional
approaches like the straight-line method to modern techniques and also some other methods.
Looking towards the future, the paper speculates on potential trends in depreciation accounting,
including the integration of technology, shifts towards sustainability reporting, and ongoing
refinements in methodologies to better capture asset values and useful lives.
This term paper provides a comprehensive exploration of depreciation accounting, offering

insights into its past, present, and future. By understanding the historical evolution, regulatory
nuances, and emerging trends, stakeholders can navigate depreciation accounting with
confidence, ensuring the integrity and reliability of financial information in an ever-changing
business landscape.
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Table of Contents
Acknowledgement...........................................................................................................................ii
LETTER OF TRANSMITTAL......................................................................................................iii
Executive Summary........................................................................................................................iv
Objective of this Term Paper...........................................................................................................1
Define Depreciation Accounting:............................................................................................1
Regulatory Framework on Depreciation Accounting in Bangladesh:.....................................1
Explore Depreciation Methods:...............................................................................................1
Address Challenges and Controversies:..................................................................................1
Examine Technological Advancements:.................................................................................1
Present Case Studies:...............................................................................................................2
Speculate on Future Trends:....................................................................................................2
Findings...........................................................................................................................................3
Introduction......................................................................................................................................5
Historical Background.....................................................................................................................7
Early Practices:........................................................................................................................7
Regulation and Recognition:...................................................................................................7
Challenges and Court Rulings:................................................................................................7
Business Response:..................................................................................................................8
Standardization and Taxation:.................................................................................................8
Refinement and Modernization:..............................................................................................8
Regulatory Framework on Depreciation Accounting in Bangladesh..............................................9
Bangladesh Accounting Standards (BAS) and Bangladesh Financial Reporting Standards

(BFRS):....................................................................................................................................9
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Income Tax Ordinance 1984:..................................................................................................9
Companies Act 1994:..............................................................................................................9
Bangladesh Securities and Exchange Commission (BSEC):..................................................9
Comparing Bangladesh’s Perspective with International Practices..............................................10
Alignment with International Standards:...............................................................................10
Tax Regulations:....................................................................................................................10
Regulatory Oversight:............................................................................................................10
Challenges and Local Adaptations:.......................................................................................11
Evolution of Depreciation Methods...............................................................................................11
Depreciation Measurement Methods.........................................................................................11
Straight-Line Method Overview:...........................................................................................11
Straight-Line Method.................................................................................................................12
Benefits of Straight-Line Method:.........................................................................................13
Drawbacks of Straight-Line Method:....................................................................................13
Units-of-Activity Method..........................................................................................................16
Formula for units of Activity method:...................................................................................16
Calculate Depreciation per Unit:...........................................................................................16
Calculate Annual Depreciation:.............................................................................................17
Summit Power Limited..............................................................................................................17
Chevron Corporation Depreciation Analysis: 2020-2022.........................................................17
Depreciation Figures..............................................................................................................18
Analysis of Depreciation Practices........................................................................................19
Impact on Financial Statements.................................................................................................19
China Petroleum & Chemical Corporation (Sinopec) Depreciation Analysis: 2020-2022.......20
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Tobacco Bangladesh Company Limited (BATBC) Depreciation Analysis: 2020-2022...........22
Impact on Financial Statements.............................................................................................24
Challenges and Controversies in Depreciation Accounting..........................................................26
Determining the Useful Life of Assets......................................................................................26
Selecting Appropriate Depreciation Methods...........................................................................26
Impact on Financial Statements and Tax Liabilities..................................................................27
Technological Advancements in Depreciation Accounting..........................................................28
Impact of Advanced Machinery and Equipment.......................................................................28
Changes in Depreciation Methods.............................................................................................28
Enhanced Asset Tracking and Management..............................................................................28
Increased Accuracy and Efficiency...........................................................................................29
Case Studies: Real-World Applications of Depreciation Accounting...........................................29
Manufacturing Industry: Heavy Machinery..............................................................................29
Construction Industry: Real Estate Development......................................................................29
Transportation Industry: Airline Fleets.....................................................................................30
Future Trends: The Evolution of Depreciation Accounting..........................................................30
Advances in Technology...........................................................................................................30
Integration with Digital Transformation....................................................................................30
Conclusion.....................................................................................................................................31
References.....................................................................................................................................vii
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Objective of this Term Paper
The objective of this term paper is to provide a comprehensive analysis of depreciation
accounting, highlighting its theoretical foundations, practical applications, challenges, and
evolving trends. This paper aims to achieve the following specific goals:
Define Depreciation Accounting:
Clearly articulate the concept of depreciation accounting, including its purpose and importance
in financial reporting.
Explain the basic principles and methodologies used to calculate depreciation.
Regulatory Framework on Depreciation Accounting in Bangladesh:
Focuses on understanding how depreciation accounting is regulated in Bangladesh, including the

roles of the Institute of Chartered Accountants of Bangladesh (ICAB), the Bangladesh Securities
and Exchange Commission (BSEC), and relevant tax laws. It also aims to compare these
regulations with international standards set by bodies such as the International Accounting
Standards Board (IASB) and the Financial Accounting Standards Board (FASB)..
Explore Depreciation Methods:
Describe the various methods of calculating depreciation, including the straight-line method,
declining balance method, and units of production method.
Assess the applicability and implications of each method in different business contexts.
Address Challenges and Controversies:
Identify and discuss the challenges and controversies surrounding depreciation accounting.
Consider issues such as determining the useful life of assets, selecting appropriate depreciation
methods, and the impact on financial statements and tax liabilities.
Examine Technological Advancements:
Investigate how technological advancements have influenced depreciation accounting.
Consider the impact of advanced machinery and equipment on depreciation methods and asset
valuation.
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Present Case Studies:
Provide real-world examples or case studies to illustrate the application of depreciation

accounting concepts in practice.
Focus on industries such as manufacturing, construction, and transportation to demonstrate

diverse scenarios.
Speculate on Future Trends:
Analyze potential future developments in depreciation accounting.
Consider the influence of technological advances, changes in regulatory frameworks, and

evolving business models on the future of depreciation calculation and reporting.
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Findings
Historical Background: The historical background section provides insights into the origins and
evolution of depreciation accounting. It highlights how the concept of depreciation has
developed over time, from early recognition in the 18th century to its integration into modern
accounting practices.
Regulatory Framework in Bangladesh: The analysis of the regulatory framework in

Bangladesh reveals the country-specific guidelines and standards governing depreciation
accounting. It discusses how regulatory bodies in Bangladesh, such as the Institute of Chartered
Accountants of Bangladesh (ICAB), influence depreciation practices through local regulations
and compliance requirements.
Comparison with International Practices: By comparing Bangladesh's perspective with

international practices, the term paper identifies similarities and differences in depreciation
accounting standards and practices. It examines how Bangladesh aligns with global accounting
standards set by organizations like the International Accounting Standards Board (IASB) while
considering local economic and cultural factors.
Evolution of Depreciation Methods: The exploration of depreciation methods traces their

evolution from traditional approaches to modern methodologies. It highlights the transition from
simple methods like straight-line depreciation to more sophisticated methods such as the
Modified Accelerated Cost Recovery System (MACRS) and the impact of technological
advancements on methodological developments.
Challenges and Controversies: The analysis of challenges and controversies in depreciation

accounting identifies key issues such as determining asset useful life, selecting appropriate
methods, and managing the impact on financial statements and tax liabilities. It discusses how
organizations in Bangladesh navigate these challenges to ensure accurate financial reporting.
Technological Advancements: The section on technological advancements examines how

innovations in technology have influenced depreciation accounting practices. It discusses the
adoption of advanced software systems, automation, and data analytics to enhance asset
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management, depreciation calculation accuracy, and financial reporting efficiency in
Bangladesh.
Case Studies: Real-world case studies provide practical examples of depreciation accounting
concepts in various industries within Bangladesh. These case studies illustrate how organizations
apply depreciation methods, overcome challenges, and adapt to regulatory changes and
technological advancements.
Future Trends: Speculating on future trends in depreciation accounting considers factors such
as technological innovation, regulatory reforms, and evolving business models. It discusses
potential shifts in depreciation practices, including increased reliance on data-driven decision-
making, sustainability considerations, and alignment with international standards.
These findings collectively demonstrate the complexity and dynamism of depreciation

accounting, reflecting the interplay between historical, regulatory, technological, and global
factors shaping the discipline in Bangladesh and beyond.
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Introduction
Depreciation, as an accounting concept, stands as a testament to the evolution of financial
practices alongside the growth of modern commerce and industry. Its historical trajectory traces
back centuries, reflecting the dynamic interplay between economic imperatives, regulatory
frameworks, and evolving business philosophies. From its rudimentary beginnings in the
maintenance records of 18th-century infrastructure projects to its central role in contemporary
financial reporting, the concept of depreciation has undergone a profound transformation,
shaping the way businesses assess and manage their assets.
The origins of depreciation can be discerned in the meticulous record-keeping of early industrial
endeavors. John Smeaton's 1764 entry regarding the maintenance of the Forth to Clyde canal in
Scotland exemplifies one of the earliest acknowledgments of asset deterioration and the need for
future provisioning. However, it wasn't until the burgeoning industrialization of the 19th century,
epitomized by the emergence of railroads and large-scale infrastructure projects, that
depreciation assumed greater prominence in accounting discourse.
In the early days of industrial expansion, depreciation accounting was a nascent and often
overlooked aspect of financial management. The absence of standardized practices and
regulatory oversight meant that businesses adopted varied approaches to account for asset
depreciation. Some companies set aside funds for future replacements, while others treated
replacement costs as immediate expenses. This diversity of practices underscored the lack of
consensus regarding the treatment of depreciation and highlighted the need for regulatory
intervention to ensure uniformity and transparency in financial reporting.
The mid-19th century witnessed the dawn of regulatory frameworks aimed at governing
accounting practices, particularly in industries like railroads. The introduction of regulations by
legislative bodies, such as the New York State Legislature's mandates for railroad accounting in
1850, marked a pivotal moment in the formal recognition of depreciation accounting. Despite
these regulatory efforts, ambiguity persisted, with court rulings and income tax laws offering
conflicting interpretations of depreciation's treatment in financial statements.
Amidst legal and conceptual ambiguity, businesses grappled with the challenges and
controversies surrounding depreciation accounting. Disagreements among business leaders and
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courts regarding the necessity of accounting for depreciation underscored the nascent state of
financial reporting standards. However, as the scale and complexity of business operations
expanded, so too did the recognition of depreciation as an essential aspect of financial
management.
The latter half of the 19th century witnessed a gradual shift in perception, as businesses began to
acknowledge depreciation as a fundamental component of the cost of doing business. Companies
established provisions for depreciation, either through the creation of reserves or by directly
incorporating depreciation expenses into their financial statements. This marked a significant
milestone in the development of depreciation accounting, reflecting a growing awareness of its
importance in accurately reflecting the financial health and performance of businesses.
As the 20th century dawned, efforts towards standardization of depreciation accounting practices
gained momentum, particularly within regulated industries such as utilities and railroads.
However, achieving consensus on standardized practices proved elusive, with debates persisting
over the most appropriate methods for calculating depreciation. Meanwhile, changes in taxation
laws recognized depreciation as a deductible expense, further cementing its importance in
financial accounting.
In the modern era, the concept of depreciation continues to evolve in response to changing
economic, regulatory, and technological landscapes. Advances in accounting standards and
methodologies, coupled with increased scrutiny and transparency requirements, have reshaped
the way businesses approach depreciation accounting. Yet, even as depreciation accounting has
become more sophisticated and nuanced, ongoing debates and discussions persist regarding the
most appropriate methods for accounting for depreciation in the complex and dynamic world of
modern business.
In light of this historical context and ongoing evolution, a comprehensive understanding of

depreciation accounting is essential for stakeholders across industries. This paper aims to delve
into the historical development of depreciation accounting, tracing its origins, examining its
evolution, and analyzing its contemporary relevance. By exploring the historical trajectory of
depreciation accounting, we can gain valuable insights into its significance as a foundational
concept in financial reporting and decision-making processes.
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Methodology
follows:
2012 2011
Computer and other IT equipment 4 years 4

years Historical Background
Depreciation, the gradual decline in the value of assets over time, has been acknowledged since
at least the 18th century. In those early days, the concept was primarily observed in the
maintenance of infrastructure such as canals and railways. John Smeaton's 1764 entry in an
expense report regarding the maintenance of the Forth to Clyde canal in Scotland serves as one
of the earliest recorded instances of acknowledging the idea of depreciation. It wasn't until the
dawn of the 19th century, with the emergence of burgeoning industries like the railroad, that
depreciation gained significance in the realm of accounting.
Early Practices:
The early 19th century saw the gradual integration of depreciation accounting into business
practices, particularly in the United States with the rise of large-scale infrastructure projects like
railroads. Notably, the annual report of the Baltimore and Ohio Railroad in 1835 stands out as
one of the pioneering instances where depreciation accounting was explicitly mentioned.
However, at this nascent stage, there was no standardized approach to handling depreciation,
with companies adopting various methods ranging from setting aside funds for depreciation to
charging replacement costs as immediate expenses.
Regulation and Recognition:
As the scale of business operations expanded, so did the need for regulatory oversight and
standardized accounting practices. The mid-19th century witnessed the introduction of
regulations governing accounting practices, particularly in industries like railroads. Notably, the
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New York State Legislature prescribed a system of accounting for railroads in 1850, which
included provisions for depreciation accounting. Despite this regulatory framework, the concept
of depreciation faced legal and judicial ambiguity, with court rulings and income tax laws during
the Civil War era offering little clarity on the matter.
Challenges and Court Rulings:
The latter half of the 19th century saw businesses grappling with challenges and controversies
surrounding depreciation accounting. There was considerable disagreement among business
leaders and courts regarding the treatment of depreciation in financial statements. While some
argued that depreciation should be recognized as a necessary expense, others contended that
proper maintenance of assets would obviate the need for depreciation accounting altogether.
Business Response:
Despite the legal and conceptual challenges, businesses gradually began to recognize the
importance of accounting for depreciation as a fundamental aspect of financial management.
Companies started establishing provisions for depreciation, either through the creation of
depreciation reserves or by directly incorporating depreciation expenses into their financial
statements. This marked a significant shift in perception, as businesses increasingly
acknowledged depreciation as an essential component of the cost of doing business.
Standardization and Taxation:
The early 20th century witnessed efforts towards standardization of depreciation accounting
methods, particularly within regulated industries such as utilities and railroads. However,
achieving consensus on standardized practices proved elusive, with debates persisting over the
most appropriate method for calculating depreciation. Meanwhile, changes in taxation laws, such
as the Payne-Aldrich Act of 1909 and subsequent Revenue Acts, recognized depreciation as a
deductible expense, further cementing its importance in financial accounting.
Refinement and Modernization:
As the 20th century progressed, methods of calculating and accounting for depreciation
continued to evolve in response to changing economic and regulatory landscapes. Influenced by
factors such as World War I and the Great Depression, businesses and policymakers sought to
refine depreciation accounting practices. This period saw the emergence of new methodologies
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and approaches to depreciation calculation, as well as increased scrutiny and debate over
valuation bases and depreciation rates. Despite these advancements, ongoing discussions and
debates persist regarding the most appropriate methods for accounting for depreciation in
modern business environments.
Expanding upon each section provides a more comprehensive understanding of the historical
development of depreciation accounting and its significance in modern business practices.
Regulatory Framework on Depreciation Accounting in

Bangladesh
In Bangladesh, the regulatory framework for depreciation accounting is governed by several key
institutions and standards that ensure consistency, transparency, and reliability in financial
reporting. The primary regulatory bodies and standards influencing depreciation accounting in
Bangladesh include:
Bangladesh Accounting Standards (BAS) and Bangladesh Financial Reporting Standards

(BFRS):
These standards are issued by the Institute of Chartered Accountants of Bangladesh (ICAB),
which adopts International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB) with some modifications to suit local needs.
BAS and BFRS provide guidelines on asset valuation, depreciation methods, and disclosure
requirements. They align closely with international standards to facilitate comparability and
transparency in financial reporting.
Companies Act 1994:
This act governs the overall corporate structure and financial reporting requirements for
companies operating in Bangladesh.
It mandates adherence to approved accounting standards and requires companies to present a true
and fair view of their financial position, which includes proper accounting for depreciation.
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Bangladesh Securities and Exchange Commission (BSEC):
BSEC oversees the capital market and ensures that publicly listed companies comply with the
relevant accounting standards and regulations, including those related to depreciation.
It enforces transparency and accuracy in financial disclosures to protect investors and maintain
market integrity.
Comparing Bangladesh’s Perspective with International

Practices
When comparing Bangladesh's regulatory framework for depreciation accounting with
international practices, several key differences and similarities emerge:
Alignment with International Standards:
Bangladesh’s adoption of BAS and BFRS, which are based on IFRS, indicates a strong
alignment with international standards. This facilitates comparability and consistency in financial
reporting for multinational companies operating in Bangladesh.
However, local adaptations may exist to cater to the specific economic, legal, and business
environment of Bangladesh.
Tax Regulations:
The Income Tax Ordinance in Bangladesh prescribes specific depreciation rates and methods for
tax purposes, which may differ from those used for financial reporting under BAS/BFRS.
Similarly, in many countries, there is a distinction between financial reporting standards (like
IFRS or US GAAP) and tax regulations, resulting in different depreciation practices for tax and
financial reporting.
Income Tax Ordinance 1984:
This ordinance, along with subsequent amendments and rules, provides specific guidelines on the
depreciation rates and methods that can be used for tax purposes.
Businesses must adhere to the depreciation rates specified in the ordinance, which often differ
from the rates used for financial reporting purposes under BAS/BFRS.
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Regulatory Oversight:
The role of BSEC in enforcing compliance with accounting standards is similar to that of
securities regulators in other countries, such as the Securities and Exchange Commission (SEC)
in the United States.
Regulatory bodies like the ICAB in Bangladesh and their counterparts in other countries (e.g.,
the IASB globally or the Financial Accounting Standards Board (FASB) in the US) play a
crucial role in setting and updating accounting standards, including those related to depreciation.
Challenges and Local Adaptations:
Bangladesh, like many developing countries, faces challenges such as limited resources, varying
levels of expertise among accountants, and the need to adapt international standards to local
economic conditions.
In contrast, developed countries with more mature financial systems may have more robust
mechanisms for implementing and enforcing accounting standards.
The regulatory framework for depreciation accounting in Bangladesh is well-structured, with

standards and regulations that largely align with international practices. However, there are
unique adaptations to cater to the local context, particularly in tax regulations and the
enforcement capabilities of regulatory bodies. By comparing Bangladesh’s perspective with
international practices, it becomes evident that while there are similarities in the overarching
principles and goals, the practical implementation and specific guidelines may differ to address
local economic and regulatory environments.
Evolution of Depreciation Methods

Depreciation methods have evolved significantly over time, reflecting changes in accounting
practices, regulatory requirements, and business environments. These methods are used to
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allocate the cost of tangible fixed assets over their useful lives in a systematic and rational
manner.
Depreciation Measurement Methods
Straight-Line Method Overview: The straight-line method is one of the simplest and most
widely used depreciation methods. It spreads the cost of an asset evenly over its useful life.
Historical Context: The straight-line method has been in use since the early days of modern
accounting. It gained popularity due to its simplicity and ease of calculation, making it accessible
for businesses of all sizes.
Declining Balance Method Overview: The declining balance method is an accelerated

depreciation method that expenses a higher amount in the early years of an asset's life and
gradually decreases over time.
Historical Context: This method emerged as businesses recognized that certain assets, like
machinery and vehicles, lose value more rapidly in their initial years of use.
Units of Production Method Overview: The units of production method ties depreciation
expense directly to the asset's usage, making it variable rather than fixed.
Historical Context: This method became prominent in industries where asset usage varies
significantly from period to period, such as manufacturing and mining.
Straight-Line Method
The straight-line method is the simplest and most common way to calculate depreciation expense
for an asset.
To compute depreciation expense under the straight-line method, companies first need to
determine depreciable cost .
Depreciable cost=Cost of Asset - Salvage Value
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Secondly, companies need to calculate the annual depreciation expense.
Annual Depreciation Expense = Depreciable cost / Useful life(in years)
Example: Let's say you buy a delivery truck in 2017 for $30,000 and expect it to last for 5 years
with a residual value of $5,000. Using the straight-line method, your annual depreciation expense
would be:
Initial Cost = $30,000 Residual Value = $5,000 Useful Life = 5 years
Depreciation Expense per year = (Initial Cost - Residual Value) / Useful Life
Depreciation Expense per year = ($30,000 - $5,000) / 5 years
Depreciation Expense per year = $25,000 / 5 years
Depreciation Expense per year = $5,000
So, using the straight-line method, your annual depreciation expense would be $5,000.
depreciation schedule starting from the year 2017. Since the truck's useful life is 5 years, the
schedule will cover the years 2017 to 2021. Here's how it would look:
Year Initial Value Depreciation Expense Accumulated Depreciation Book Value

2017 $30,000 $5,000 $5,000 $25,000
2018 $30,000 $5,000 $10,000 $20,000
2019 $30,000 $5,000 $15,000 $15,000
2020 $30,000 $5,000 $20,000 $10,000
2021 $30,000 $5,000 $25,000 $5,000
In this table:
 Initial Value: The initial cost of the truck.

 Depreciation Expense: The annual depreciation expense calculated using the straight-line
method.
 Accumulated Depreciation: The total depreciation accumulated up to that year.
 Book Value: The remaining value of the truck after depreciation.
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Benefits of Straight-Line Method:
 Simplicity: It's easy to understand and calculate, making it a popular choice for
businesses.
 Transparency: The depreciation expense remains constant throughout the asset's life,
providing a clear picture of its value on the financial statements.
Drawbacks of Straight-Line Method:
 May not reflect reality: Assets often don't depreciate evenly. They might experience a
sharper decline in value in their earlier years due to wear and tear.
 Understates expense in early years: The straight-line method might not accurately
reflect the higher usage an asset typically sees in its initial years.
Use of the Straight line method is followed by most of the companies in bangladesh. Companies
like ACI, BEXIMCO, ROBI, UNILEVER BANGLADESH follow straight line method.
Depreciation method in BRAC:
1 Property, plant and equipment
All items of property, plant and equipment are initially recorded at cost. Cost includes
expenditures that are directly attributable to the acquisition of property, plant and equipment.
The cost of an item of property, plant and equipment is recognised as an asset if, and only if all
the following conditions are met:
a) the asset is available for use
b) it is probable that future economic benefits will flow to BRAC
c) the cost of the item can be measured reliably and exceeds Tk. 2,000
d) it is expected to be used for more than 3 years
Subsequent to recognition, plant and equipment and furniture and fixtures are measured at cost
less accumulated depreciation and accumulated impairment losses. When significant parts of
property, plant and equipment are required to be replaced in intervals, the Group recognises such
parts as individual assets with specific useful lives and depreciation respectively
Freehold land has an unlimited useful life and therefore is not depreciated. Depreciation is
provided for on a straight-line basis over the estimated useful lives of the assets at the following
annual rates which are consistent with the prior year:
Item Annual Depreciation Rate (%)

Buildings 4-10
Furniture & Fixtures 10-20
Equipment 15-33.3
Computer and IT Equipment 20-33.3
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Vehicles 20
Bicycles 20
Machinery 20
Deep tube wells and tanks 20
Hatcheries 20
Motorcycles 20
Camp/Poultry/Livestock sheds 20
Crates/Mannequins/Samples 33.33
Software 20
Depreciation method in ACI:
Depreciation is recognized in the Statement of profit or loss and other comprehensive income on
a straight line basis over the estimated useful lives of each item of property, plant and equipment.
Depreciation on property, plant and equipment is charged from the month of acquisition. In case
of disposals, depreciation is charged up to the immediate previous month of disposal. No
depreciation is charged on leasehold land and capital work-in-progress. Depreciation is
calculated and charged on all other property, plant and equipment at the following rates on cost
or valuation, considering the estimated useful lives of the assets:
Factory building and warehouse 2.5%

Motor vehicles 20%-25%
Plant, machinery and equipment 5% -15%
IT equipment 30%
Furniture and fixtures 6% -7%
Gain or loss on sale of property, plant and equipment is recognized in the Statement of profit or
loss and other comprehensive income as per provision of IAS 16: “Property, plant and
equipment”.
Depreciation method in GrameenPhone
Depreciation
No depreciation is charged on capital work in progress.
Depreciation on property, plant and equipment is recognized on a straight-line basis over the
estimated useful lives of each item of property, plant and equipment. For addition to property,
plant and equipment, depreciation is charged from the date of capitalisation up to the month
immediately preceding the month of disposal. Depreciation method, useful lives and residual
values are reviewed at each reporting date and adjusted if appropriate. The estimated useful lives
of the items of property, plant and equipment for the current and comparative periods are as
Vehicles 4 years 4 years
Furniture and fixtures 3 years 3 years
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Units-of-Activity Method
The Units of Activity depreciation method is commonly used by companies where the
depreciation is based on the usage of the asset rather than the passage of time. This method is
particularly suitable for manufacturing equipment, vehicles, or machinery that are heavily tied to
production output. The units of activity depreciation method, also known as the units of
production method, calculate depreciation based on the actual usage of the asset, such as miles
driven for trucks or hours in use for airplanes. Essentially, the more the asset is used, the more
depreciation is recognized. This method can be more accurate for assets whose wear and tear
correlate directly with their usage. It involves estimating the total number of units the asset will
produce over its useful life and then depreciating it based on the actual units produced each
period. The units of activity method is not typically suitable for assets like buildings or furniture
because their depreciation is more closely related to the passage of time rather than their actual
usage. For these types of assets, methods like straight-line depreciation or the double-declining
balance method are more commonly used, as they allocate depreciation evenly over the asset's
useful life or accelerate it based on a predetermined pattern, respectively.
Formula for units of Activity method:
1. Estimate Total Units of Activity: The company estimates the total units of activity the asset
will produce over its useful life.
2. Calculate Depreciable Cost per Unit: The depreciable cost of the asset is divided by the total
units of activity to determine the depreciable cost per unit. This is essentially the cost allocated to
each unit of activity.
3. Multiply Depreciable Cost per Unit by Units of Activity during the Year: During each
accounting period, the company calculates the depreciation expense by multiplying the
depreciable cost per unit by the actual units of activity incurred during that period.
Let's consider an example using an international company, Oil PLC, which installs a crude oil
processing plant costing $12 million with an estimated capacity to process 50 million barrels of
crude oil during its entire life. The expected residual value of the plant is $2 million.
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Calculate Depreciation per Unit:
Cost −Residual Value

Depreciation per Unit¿
Total Estimated Production
12,000,000−2,000,000
¿
50,000,000
¿ 0.2 dollars per barrel
Calculate Annual Depreciation:
Annual Depreciation Expense= Depreciation per Unit × Units Produced in a Year
For 2 million barrels during the year
How it’s works:
Depreciable Cost ÷ Total Units of Activity ¿ Depreciable Cost per Unit
10,000,000 50,000,000 0.2
Depreciable × Units of Activity ¿ Annual Depreciation

Cost per Unit During the year Expense
0.2 2,000,000 400,000
Let's see some international and Bangladeshi giant companies that have been following this
method to depreciate their assets.
Summit Power Limited
Summit Power Ltd use units of activity method on their Equipment and Machineries.
As a power generation company, they use this method to depreciate their turbines and other
generation equipment based on actual output.
Depreciation on Plant and Machineries 30 June 2021 1,863,339,195 (Consolidated)
18
Chevron Corporation Depreciation Analysis: 2020-2022
Chevron Corporation, a global leader in the oil and gas industry, employs various depreciation
methods to allocate the cost of tangible assets over their useful lives. The company’s primary
assets include exploration and production equipment, refining and marketing facilities, and
corporate assets. Chevron’s depreciation policy is designed to reflect the usage patterns and
economic benefits derived from these assets.
Depreciation Rates and Useful Lives
Buildings: 20-40 years
Machinery and Equipment: 5-20 years
Oil and Gas Properties: Based on units-of-production
Here is the depreciation figure of 3 three year
Exploration and Production: $10.7 billion
Refining and Marketing: $3.2 billion
Corporate and Other: $1.2 billion
Depreciation Figures
2020 2021 2022 2023
Exploration and Exploration and Exploration and Exploration and

Production: $11.8 Production: $10.9 Production: $10.5 Production: $10.5
billion billion billion billion
Refining and Refining and Refining and Refining and

Marketing: $3.2 Marketing: $3.1 Marketing: $3.0 Marketing: $3.0
Corporate and Corporate and Other: Corporate and Corporate and

Other: $1.3 billion $1.4 billion Other: $1.3 billion Other: $1.3 billion
Total Depreciation Total Depreciation Total Depreciation Total Depreciation
19
Expense: $16.3 Expense: $15.4 Expense: $14.8 Expense: $15.1
Analysis of Depreciation Practices
Chevron’s significant investment in exploration and production assets necessitates the use of the
UOP method, ensuring that depreciation expenses correlate directly with production output. This
method provides a realistic depiction of asset usage and resource depletion, crucial for financial
accuracy and transparency.
Refining and Marketing Assets
For refining and marketing assets, Chevron predominantly uses the straight-line method. This
approach simplifies accounting and aligns with the steady usage patterns of these long-term
assets. Consistent expense recognition helps in financial planning and performance analysis.
Corporate and Other Assets
Corporate assets, including office buildings and IT infrastructure, are depreciated using the
straight-line method. This method supports straightforward financial reporting and aids in
budgetary control. The declining balance method is selectively applied to high-usage equipment
to reflect accelerated depreciation, ensuring the financial statements accurately represent asset
value.
Impact on Financial Statements
Income Statement
Depreciation expenses are a significant component of Chevron’s operating expenses, impacting

on net income. The methodical allocation of these expenses over the asset’s useful life ensures
that profit figures are not overstated, maintaining investor confidence and financial integrity.
Balance Sheet
20
Accumulated depreciation reduces the book value of assets on the balance sheet. This approach
provides a realistic valuation of Chevron’s asset base, ensuring that stakeholders have an
accurate understanding of the company’s financial position.
Cash Flow Statement
Depreciation is a non-cash expense, added back to net income in the operating activities section
of the cash flow statement. This adjustment is crucial for reflecting the actual cash generation
capacity of the company, critical for assessing liquidity and financial health.
Chevron’s depreciation practices, rooted in industry standards and tailored to their asset
portfolio, ensure financial statements accurately reflect the economic reality of their operations.
The use of the UOP method for oil and gas properties aligns expenses with production, while the
straight-line and declining balance methods for other assets support consistent and transparent
financial reporting. Over the past three years, Chevron’s depreciation expenses have mirrored
their operational adjustments, showcasing the adaptability and precision of their accounting
practices.
China Petroleum & Chemical Corporation (Sinopec) Depreciation Analysis:

2020-2022
China Petroleum & Chemical Corporation, commonly known as Sinopec, is one of the largest oil
and gas companies in the world. The company employs various depreciation methods to allocate
the cost of its extensive range of tangible assets. Sinopec's primary assets include exploration and
production equipment, refining and marketing facilities, pipelines, and corporate assets. This
report provides an in-depth analysis of Sinopec's depreciation practices over the past three years,
focusing on their methods, key figures, and the impact on their financial statements.
Machinery and Equipment: 5-25 years
Oil and Gas Properties: Based on units-of-production
21
2020 2021 2022 2023
Exploration and Exploration and Exploration and Exploration and

Production: ¥63.2 Production: ¥61.0 Production: ¥59.7 Production: ¥60.5
Refining and Refining and Refining and Refining and

Marketing: ¥28.5 Marketing: ¥27.4 Marketing: ¥26.6 Marketing: ¥27.0
Corporate and Other: Corporate and Other: Corporate and Corporate and
¥9.8 billion ¥9.4 billion Other: ¥9.0 billion Other: ¥9.2 billion

Expense: ¥101.5 Expense: ¥97.8 Expense: ¥95.3 Expense: ¥98.2
The company uses the units-of-production method to depreciate its oil and gas properties.
Depreciation expense is calculated based on the ratio of actual production to total proved
reserves.
Depreciation of refining and marketing assets is generally computed using the straight-line
method over the estimated useful lives of the assets.
straight-line method. The declining balance method is applied selectively to high-usage
equipment to reflect accelerated depreciation.
22
Exploration and Production Assets
Sinopec’s significant investment in exploration and production assets necessitates the use of the
UOP method. This method ensures that depreciation expenses are closely tied to the production
output, providing a realistic depiction of asset usage and resource depletion. Changes in
production levels and reserve estimates significantly impact on the annual depreciation expense.
Refining and Marketing Assets
For refining and marketing assets, Sinopec predominantly uses the straight-line method. This
method simplifies accounting and aligns with the steady usage patterns of these long-term assets.
Consistent expense recognition aids in financial planning and performance analysis, offering a
straightforward approach to reflecting the gradual wear and tear of these assets.
Corporate and Other Assets
straight-line method. This approach supports straightforward financial reporting and aids in
budgetary control. The declining balance method is selectively applied to high-usage equipment
to reflect accelerated depreciation, ensuring the financial statements accurately represent asset
value.
Sinopec’s depreciation practices, rooted in industry standards and tailored to their diverse asset
portfolio, ensure financial statements accurately reflect the economic reality of their operations.
The use of the UOP method for oil and gas properties aligns expenses with production, providing
a realistic depiction of asset depletion. For other assets, the straight-line and declining balance
methods support consistent and transparent financial reporting. Over the past three years,
Sinopec’s depreciation expenses have mirrored their operational adjustments, showcasing the
adaptability and precision of their accounting practices.
23
Tobacco Bangladesh Company Limited (BATBC) Depreciation Analysis:
2020-2022
British American Tobacco Bangladesh Company Limited (BATBC) is one of the largest and
oldest multinational companies operating in Bangladesh. BATBC employs various depreciation
methods to allocate the cost of its tangible assets over their useful lives. This report provides a
detailed analysis of BATBC's depreciation practices over the past three years, focusing on their
methods, key figures, and the impact on their financial statements.
Plant and Machinery: 5-20 years
Equipment: 3-10 years
Vehicles: 4-8 years
2020 2021 2022 2023
Buildings: BDT 0.4 Buildings: BDT 0.4 Buildings: BDT 0.4 Buildings: BDT 0.5
Plant and Machinery: Plant and Plant and Plant and

BDT 0.8 billion Machinery: BDT Machinery: BDT 0.9 Machinery: BDT
0.9 billion billion 1.0 billion
Equipment and Equipment and Equipment and Equipment and

Vehicles: BDT 0.3 Vehicles: BDT 0.3 Vehicles: BDT 0.3 Vehicles: BDT 0.3

Expense: BDT 1.5 Expense: BDT 1.6 Expense: BDT 1.7 Expense: BDT 1.8
24
Buildings
BATBC’s investment in buildings, including factories and offices, are depreciated using the
straight-line method. This method provides a consistent and predictable expense over the asset's
useful life, supporting financial planning and stability.
Plant and Machinery
Plant and machinery, critical for production, are depreciated primarily using the straight-line
method. However, for specialized production equipment where usage varies significantly, the
UOP method is applied to better match expenses with production levels. This ensures that
depreciation reflects the actual wear and tear from production activities.
Equipment and Vehicles
Office equipment, IT infrastructure, and vehicles are depreciated using the straight-line method.
This method aligns with the relatively predictable usage patterns of these assets, offering a
straightforward approach to expense recognition.
In the Income Statement depreciation expenses are a substantial component of BATBC’s

operating expenses, affecting net income. The systematic allocation of these expenses over the
asset’s useful life ensures that profit figures are accurately represented, maintaining investor
confidence and financial integrity.
In Balance Sheet Accumulated depreciation reduces the book value of assets on the balance
sheet. This approach provides a realistic valuation of BATBC’s asset base, ensuring that
stakeholders have an accurate understanding of the company’s financial position.
In Cash Flow Statement Depreciation is a non-cash expense, added back to net income in the
operating activities section of the cash flow statement. This adjustment is crucial for reflecting
the actual cash generation capacity of the company, critical for assessing liquidity and financial
health.
25
BATBC’s depreciation practices, rooted in industry standards and tailored to their diverse asset
portfolio, ensure that financial statements accurately reflect the economic reality of their
operations. The use of the straight-line method for most assets provides consistent and
transparent financial reporting. For specialized equipment where usage impacts depreciation, the
UOP method ensures that expenses align with actual wear and tear. Over the past three years,
BATBC’s depreciation expenses have mirrored their operational adjustments, showcasing the
adaptability and precision of their accounting practices.
The company uses the straight-line method to depreciate its buildings, plant and machinery, and
other equipment. Depreciation expense is recognized over the estimated useful lives of the
assets. For specialized production equipment, the units-of-production method is used to align
depreciation expenses with actual usage levels, ensuring an accurate reflection of wear and tear.
Continued investment in new technology and machinery has been a focus, with depreciation
expenses adjusted accordingly to reflect the upgraded asset base.
The units of activity method is less popular than the straight-line method mainly because it’s
hard for companies to accurately estimate total activity over an asset’s useful life. Estimating
usage, like total oil processing, is uncertain and adds complexity. Tracking actual usage each
period is also cumbersome. Additionally, varying estimates can lead to inconsistencies in
financial reporting, making the straightforward and consistent straight-line method more
appealing for most assets.
When an asset's productivity varies significantly between periods, the units of activity method
better matches expenses with revenues. This method ties depreciation directly to usage, ensuring
expenses align with periods of higher or lower asset use. This results in a more accurate
representation of profitability and better adherence to the matching principle.
26
Declining Balance Method
The declining balance method is a technique used in accounting to calculate depreciation

on assets. Unlike the straight-line method, which spreads the cost evenly over the asset's
useful life, the declining balance method accelerates depreciation. This means larger
depreciation expenses are recorded in the earlier years of the asset's life, tapering off in
the later years.
Why the Declining Balance Method is Used:
1. Realistic Asset Depreciation: Many assets, such as machinery and vehicles, lose
value more quickly in the first few years of use. The declining balance method reflects
this natural wear and tear more accurately.
2. Tax Benefits: Accelerating depreciation allows businesses to reduce taxable income in

the earlier years of an asset's life, providing a tax shield and improving cash flow.
3. Matching Expenses with Revenue: For assets that generate higher revenues in their
early years, this method aligns expenses more closely with the revenue they help
generate, adhering to the matching principle in accounting.
What the Declining Balance Method Is:
27
The declining balance method calculates depreciation by applying a constant rate to the
remaining book value of the asset each year. The formula typically used is:
Depreciation Expense = Depreciation Rate X Book Value at Beginning of Year
Where the depreciation rate is often double that of the straight-line rate in the case of the
double-declining balance method. This results in a rapidly decreasing depreciation
expense over time, which reflects the actual utility and economic benefits derived from
the asset.
Bangladesh Manufacturing Company Limited

(BMCL) Depreciation Analysis: 2020-2022
Bangladesh Manufacturing Company Limited (BMCL) is a prominent player in the

manufacturing sector in Bangladesh. BMCL employs the declining balance method to
allocate the cost of its tangible assets over their useful lives. This report provides a
detailed analysis of BMCL's depreciation practices over the past three years, focusing on
their methods, key figures, and the impact on their financial statements.
28
Vehicles: 4-8 years
Year Buildings Plant and Equipment Vehicles Total

Machinery Depreciation
Expense
2020 BDT 0.6 BDT 1.0 BDT 0.45 BDT 0.8 BDT 2.85
billion Billion Billion Billion Billion
billion Billion Billion Billion Billion
Billion Billion Billion Billion Billion
Buildings
BMCL’s investment in buildings, including factories and offices, are depreciated using
the declining balance method at a rate of 5%. This method accelerates depreciation
expenses in the early years of the asset's life, which can be beneficial for tax purposes and
aligns expenses with the asset's usage pattern.
29
Plant and Machinery
Plant and machinery, critical for production, are depreciated using the declining balance
method at a rate of 10%. This method results in higher depreciation charges in the initial
years, matching the rapid wear and tear typically associated with heavy usage in
manufacturing operations.
Equipment
Office equipment, IT infrastructure, and other machinery are depreciated at a 15%

declining balance rate. This method ensures that the higher costs associated with the rapid
obsolescence of technology are accurately reflected in the financial statements.
Vehicles
Vehicles, which are essential for logistics and operations, are depreciated using the
declining balance method at a rate of 20%. The accelerated depreciation acknowledges
the faster decline in value and functionality due to heavy usage and technological
advancements.
Income Statement
30
Depreciation expenses are a significant component of BMCL’s operating expenses,
affecting net income. The accelerated depreciation method results in higher expenses in
the earlier years, reducing taxable income initially but providing a more accurate
reflection of asset usage and wear.
Balance Sheet
Accumulated depreciation reduces the book value of assets on the balance sheet. The
declining balance method provides a realistic and conservative valuation of BMCL’s
asset base, ensuring stakeholders have a clear understanding of the company’s financial
position.
Cash Flow Statement
Depreciation is a non-cash expense, added back to net income in the operating activities
section of the cash flow statement. This adjustment is crucial for reflecting the actual
cash generation capacity of the company, critical for assessing liquidity and financial
health.
31
Conclusion
BMCL’s depreciation practices, rooted in industry standards and tailored to their diverse
asset portfolio, ensure that financial statements accurately reflect the economic reality of
their operations. The use of the declining balance method for most assets provides
accelerated depreciation, aligning expenses more closely with actual asset usage and
wear. Over the past three years, BMCL’s depreciation expenses have mirrored their
operational adjustments, showcasing the adaptability and precision of their accounting
practices.
The company's focus on rapid depreciation of its assets through the declining balance
method ensures that financial statements maintain transparency and accuracy. Continued
investment in new technology and machinery has been a focus, with depreciation
32
Dhaka Textile Mills Limited (DTML)
Depreciation Analysis: 2020-2022
Dhaka Textile Mills Limited (DTML) is a leading textile manufacturing company in

Bangladesh. DTML employs the declining balance method to allocate the cost of its
tangible assets over their useful lives. This report provides a detailed analysis of DTML's
depreciation practices over the past three years, focusing on their methods, key figures,
and the impact on their financial statements.
Vehicles: 4-8 years
Year Buildings Plant and Equipment Vehicles Total

Machinery Depreciation
Expense
33
Income Statement
Depreciation expenses are a significant component of DTML’s operating expenses,

affecting net income. The accelerated depreciation method results in higher expenses in
the earlier years, reducing taxable income initially but providing a more accurate
reflection of asset usage and wear.
Balance Sheet
Accumulated depreciation reduces the book value of assets on the balance sheet. The
declining balance method provides a realistic and conservative valuation of DTML’s
asset base, ensuring stakeholders have a clear understanding of the company’s financial
position.
34
Cash Flow Statement
Depreciation is a non-cash expense, added back to net income in the operating activities
section of the cash flow statement. This adjustment is crucial for reflecting the actual
cash generation capacity of the company, critical for assessing liquidity and financial
health.
Conclusion
DTML’s depreciation practices, rooted in industry standards and tailored to their diverse
asset portfolio, ensure that financial statements accurately reflect the economic reality of
their operations. The use of the declining balance method for most assets provides
accelerated depreciation, aligning expenses more closely with actual asset usage and
wear. Over the past three years, DTML’s depreciation expenses have mirrored their
operational adjustments, showcasing the adaptability and precision of their accounting
practices.
The company's focus on rapid depreciation of its assets through the declining balance
method ensures that financial statements maintain transparency and accuracy. Continued
investment in new technology and machinery has been a focus, with depreciation
35
Walmart Inc. Accelerated Depreciation Analysis ( 2020 – 2024)
Walmart is an American multinational retail corporation that operates a chain of hypermarkets,

discount stores, and grocery stores. It offers a wide range of products, including clothing,
electronics, home appliances, groceries, and more, at competitive prices. Walmart also has a
strong online presence and is known for its efficient supply chain and logistics capabilities.
Depreciation Rate & Useful life :
Here is the depreciation figure of 5 years:
Exploration & Production : 8.97 billion
Refining & Marketing :2.7 billion
Corporate & Other : 1.7 billion
Depreciation Figure :
2020 2021 2022 2023 2024
Explanation & Explanation & Explanation & Explanation & Explanation &
Production : 10 Production : 9 Production : 8.5 Production : 8 Production :
billion billion billion billion 8.95 billion
Refining & Refining & Refining & Refining & Refining &
Marketing :2.5 Marketing: 2.1 Marketing: 2.0 Marketing: 2.0 Marketing: 2.3
billion billion billion billion billion
Corporate & Corporate & Corporate & Corporate & Corporate &
Other : 1.5 billion Other :1.6 billion Other :1.8 billion Other :1.6 Other :1.4
billion billion
Total Total Total Total Total

Depreciation Depreciation Depreciation Depreciation Depreciation
Expense : $14 Expense : $12.7 Expense :$11.1 Expense :$11.6 Expense :
36
billion billion billion billion $11.9 billion
Analysis of Depreciation Practice :
Walmart's significant investment in exploration & production necessary the use of the
accelerated depreciation method It allows businesses to deduct a larger amount of an asset’s cost
in the early years of the asset’s useful life, and less in the later years. This practice is commonly
used to match the asset’s consumption with the income it generates during its useful life.
Refining &Marketing Asset :
Refining and marketing assets are typically considered to be depreciable assets, as they have a
limited useful life and will eventually need to be replaced. In the context of accelerated
depreciation, these assets would be subject to the same accelerated depreciation rules as other
depreciable assets.
Corporate & Other Asset :
Corporate and other assets, such as office furniture, computers, and buildings, are typically
considered to be depreciable assets. These assets have a limited useful life and will eventually
need to be replaced. In the context of accelerated depreciation, these assets would be subject to
the same accelerated depreciation rules as other depreciable assets.
Impact on Financial Statement :
Walmart, as a large multinational retail corporation, has likely used accelerated depreciation in
its financial statements to reduce its taxable income and net income in the early years of an
asset’s useful life. By depreciating assets more quickly than the straight-line method, Walmart
can deduct a larger amount of an asset’s cost in the early years.
This can have several effects on Walmart’s financial statements:
37
1. Lower net income: As accelerated depreciation reduces taxable income, it can also reduce
in the early years. This is because the company is deducting more of the asset’s cost in
the early years, which can free up more cash for other business activities.
2. Distorted financial statements: Accelerated depreciation can distort Walmart’s financial
statements, as it does not accurately reflect the asset’s consumption over its useful life.
This can make it difficult for investors and other stakeholders to understand the true
economic cost of the asset.
3. Increased tax expense: While accelerated depreciation can reduce taxable income, it can
also increase Walmart’s tax expense in the early years. This is because the company is
deducting Walmart’s net income. This can make the company appear less profitable in
the early years of an asset’s life, which may affect its stock price and other financial
metrics.
4. Increased cash flow: While accelerated depreciation can reduce net income, it can also
increase Walmart’s cash flow of the asset’s cost in the early years, which can lead to
higher tax payments.
The impact of accelerated depreciation on Walmart’s financial statements can vary depending on
the specific assets being depreciated, the company’s chosen depreciation method, and the
country or jurisdiction in which Walmart operates. Additionally, Walmart’s financial statements
are subject to audit and scrutiny by regulators, investors, and other stakeholders, so the company
must ensure it is in compliance with the relevant tax laws and regulations.
Challenges and Controversies in Depreciation

Accounting
Determining the Useful Life of Assets
Uncertainty and Estimation Difficulties One of the main challenges in depreciation accounting is
accurately estimating the useful life of an asset. Predicting how long an asset will remain
productive involves a significant degree of uncertainty. Factors such as technological
38
advancements, market conditions, and usage patterns can drastically alter the actual useful life
from initial estimates.
Influence of Technological Changes Technological advancements can render certain assets

obsolete faster than anticipated. For example, rapid developments in computer technology mean
that equipment might need replacement sooner than expected. This variability makes it difficult
for accountants to set precise useful life spans, leading to potential inaccuracies in depreciation
schedules.
Subjectivity and Inconsistency Estimating useful life often involves subjective judgment, which
can lead to inconsistencies across different organizations or even within the same company over
time. Different accountants might have varying opinions on the lifespan of similar assets,
resulting in a lack of standardization and potential manipulation of financial results.
Selecting Appropriate Depreciation Methods
Diverse Depreciation Methods There are several methods available for calculating depreciation,
such as straight-line, declining balance, and units of production. Each method impacts the
financial statements differently, leading to controversies over which is the most appropriate and
fair representation of asset depreciation.
Matching Expenses with Revenues Choosing a depreciation method that aligns expenses with the
revenues generated by the asset is crucial but challenging. For instance, a straight-line method
might not accurately reflect the usage pattern of an asset that wears out faster in its early years.
This misalignment can distort financial performance measures, affecting stakeholders' decisions.
Regulatory Compliance Different countries and regulatory bodies have varied requirements for
acceptable depreciation methods. Navigating these regulations can be complex for multinational
corporations, requiring them to reconcile multiple accounting standards. This compliance burden
adds to the complexity and potential for errors in financial reporting.
Impact on Financial Statements and Tax Liabilities
Influence on Financial Performance Depreciation significantly affects a company's financial

statements, particularly the income statement and balance sheet. High depreciation expenses
reduce reported profits, which can impact investor perceptions and stock prices. Conversely,
39
lower depreciation expenses can inflate profits, potentially misleading stakeholders about the
company’s true financial health.
Tax Implications Depreciation also plays a crucial role in tax planning. Companies use
depreciation to reduce taxable income, thereby lowering tax liabilities. The choice of
depreciation method can significantly impact the timing and amount of tax payments. For
example, accelerated depreciation methods can provide short-term tax benefits but may lead to
higher tax liabilities in later years.
Earnings Management There is a risk that companies might manipulate depreciation to manage
earnings. By altering depreciation methods or estimates of useful life, firms can smooth earnings,
making their financial performance appear more stable than it actually is. This practice, while
often within legal bounds, can be ethically questionable and potentially misleading to investors.
Consistency and Comparability Consistency in applying depreciation methods is vital for

comparability over time and across firms. Frequent changes in depreciation policies can hinder
the ability of investors and analysts to make meaningful comparisons, leading to a lack of
transparency in financial reporting.
Regulatory Scrutiny Due to the significant impact on financial results, depreciation policies are
often subject to regulatory scrutiny. Authorities like the Securities and Exchange Commission
(SEC) in the United States closely monitor how companies apply depreciation to ensure
compliance with accounting standards and to prevent fraudulent financial reporting.
Depreciation accounting faces several challenges and controversies, primarily revolving around
the estimation of useful life, the selection of appropriate depreciation methods, and the impact on
financial statements and tax liabilities. These issues require careful judgment and adherence to
regulatory standards to ensure accurate and fair financial reporting. Despite the complexities,
maintaining transparency and consistency in depreciation practices is essential for fostering trust
and reliability in financial markets.
40
Technological Advancements in Depreciation Accounting
Impact of Advanced Machinery and Equipment
The introduction of advanced machinery and equipment has significantly influenced depreciation
accounting. Modern machines often come with higher costs and more complex functionalities,
which necessitate changes in how these assets are valued and depreciated. As technology
evolves, so do the methods for estimating the useful life of these assets, ensuring they are
accurately reflected in financial statements.
Changes in Depreciation Methods
Technological advancements have led to the development of more sophisticated depreciation

methods. For instance, software now allows for the application of various depreciation
techniques such as straight-line, declining balance, and units of production. These methods can
be tailored to better match the actual usage patterns and wear-and-tear of the advanced
equipment, providing a more accurate picture of an asset’s value over time.
Enhanced Asset Tracking and Management
With the advent of technologies like the Internet of Things (IoT) and artificial intelligence (AI),
businesses can now track the performance and condition of their assets in real-time. Sensors and
AI algorithms help in monitoring equipment usage, maintenance needs, and potential failures.
This real-time data can be used to adjust depreciation schedules dynamically, ensuring that the
financial records accurately represent the current state of the assets.
Increased Accuracy and Efficiency
Automation in accounting software reduces the manual workload and the potential for human
error. These systems can automatically calculate depreciation, update records, and generate
reports, enhancing both the accuracy and efficiency of the depreciation accounting process. The
use of blockchain technology further ensures the integrity and security of these financial records,
making them tamper-proof and easily auditable.
41
Case Studies: Real-World Applications of Depreciation
Accounting
Manufacturing Industry: Heavy Machinery
In the manufacturing industry, companies often invest heavily in machinery that has a significant
impact on their financial statements. Take, for instance, a company like Caterpillar Inc., a
leading manufacturer of construction and mining equipment. Caterpillar uses depreciation
accounting to allocate the cost of its heavy machinery over its useful life, typically using the
straight-line method for simplicity and consistency. By spreading the cost over several years,
Caterpillar ensures that its financial statements reflect a more accurate picture of its profitability
and financial health. This approach also aligns expenses with revenues, as the machinery
generates income over multiple years.
Construction Industry: Real Estate Development
In the construction industry, real estate developers like Toll Brothers Inc. face unique
depreciation challenges. When Toll Brothers constructs a new housing development, the
buildings and infrastructure (roads, utilities) are capitalized and depreciated over their expected
useful lives. The company often uses a combination of straight-line and accelerated depreciation
methods, depending on the asset type. For example, buildings might be depreciated using the
straight-line method, while infrastructure may use an accelerated method to match higher initial
maintenance costs. This practice helps Toll Brothers manage cash flows and tax liabilities
effectively, illustrating how depreciation policies are tailored to industry-specific needs.
Transportation Industry: Airline Fleets
Airline companies, such as Delta Air Lines, provide another compelling case study. Airlines
invest billions in their fleets, and the depreciation of these aircraft significantly impacts their
financial statements. Delta typically uses a straight-line method to depreciate its aircraft over 20-
30 years, aligning with the expected economic life of the planes. This method ensures a
consistent expense allocation, aiding in financial planning and reporting. However, factors like
42
technological advancements and changes in regulatory standards can lead to revisions in
depreciation schedules, requiring airlines to be agile in their accounting practices.
Future Trends: The Evolution of Depreciation Accounting
Advances in Technology
Technological advancements are poised to revolutionize depreciation accounting. The integration

of artificial intelligence (AI) and machine learning can enhance the accuracy of useful life
estimations and automate depreciation calculations. For example, AI algorithms can analyze
large datasets to predict asset wear and tear more precisely, leading to more accurate and
dynamic depreciation schedules. Additionally, blockchain technology could offer immutable
records of asset transactions and depreciation, enhancing transparency and reducing the risk of
manipulation.
Integration with Digital Transformation
Digital transformation is reshaping how businesses operate and maintain their assets. The use of
Internet of Things (IoT) devices for real-time monitoring of asset conditions can provide
valuable data for adjusting depreciation schedules dynamically. Predictive maintenance, powered
by IoT, can reduce unexpected breakdowns and extend asset life, influencing depreciation
calculations. As businesses continue to digitize their operations, the integration of real-time data
into depreciation accounting will become more prevalent.
The future of depreciation accounting will be shaped by technological advancements, evolving

regulatory frameworks, and new business models. Companies must stay abreast of these changes
to ensure accurate and compliant financial reporting. Real-world case studies from industries like
manufacturing, construction, and transportation illustrate how depreciation accounting concepts
are applied in practice, highlighting the importance of tailored approaches to meet industry-
specific challenges. As we move forward, the integration of AI, blockchain, and IoT, along with
a focus on sustainability, will drive significant transformations in how depreciation is calculated
and reported.
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Conclusion
The journey through the evolution of depreciation accounting has revealed a fascinating
trajectory marked by significant developments and transformations over time. From its early
recognition as a concept in accounting literature to its integration into modern financial practices,
depreciation accounting has undergone substantial changes influenced by technological
advancements, regulatory frameworks, and evolving business models.
Examining the regulatory framework from both a global and Bangladesh perspective underscores
the importance of adherence to accounting standards set forth by organizations like the
International Accounting Standards Board (IASB) and the Financial Accounting Standards
Board (FASB). Understanding these regulations is essential for ensuring transparency,
comparability, and accuracy in financial reporting, particularly in a dynamic economic
environment.
Exploring the evolution of depreciation methods highlights the shift from traditional approaches,
such as the straight-line method, to more sophisticated techniques like the Modified Accelerated
Cost Recovery System (MACRS). This evolution reflects efforts to align accounting practices
with changing business needs, technological advancements, and tax regulations.
As we look ahead, it is clear that depreciation accounting will continue to adapt to emerging
challenges and opportunities. Future trends may include further integration of technology in asset
management, increased emphasis on sustainability accounting, and ongoing refinement of
depreciation methodologies to better reflect the economic reality of assets' useful lives.
In essence, the study of depreciation accounting is not merely a reflection of past practices but a
dynamic exploration of how accounting principles evolve in response to the complexities of the
modern business landscape. By understanding its historical evolution, regulatory frameworks,
and emerging trends, stakeholders can navigate depreciation accounting with confidence,
ensuring the integrity and reliability of financial information for informed decision-makin
44
References
Depreciation- The Development of an Accounting Concept. (n.d.). Retrieved from JSTOR:
https://www.jstor.org/stable/242053
Financial Accounting Standards Board (FASB). (n.d.). Retrieved from https://www.fasb.org/
J, K., Liapis, Dimitrios, D., & Kantianis. (n.d.). Depreciation Methods and Life-Cycle Costing
(LCC) Methodology.
Littleton, A. C. (n.d.). Accounting Evolution to 1900.
Nash, L. R. (n.d.). Anatomy of Depreciation.
The Institute of Chartered Accountants of Bangladesh (ICAB). (n.d.). Retrieved from

https://www.icab.org.bd/icabadmin/uploads/ckeditor/1944IAS_16_2017.pdf
Veley, V. H. (n.d.). Depreciation.
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Depreciation- The Development of an Accounting Concept

A Term Paper Report

Bangladesh University of Professionals

Course Name: Intermediate Financial Accounting

NAZNIN NAHAR KOLI

HASIBUL ISLAM RIFAT

SADMAN HASAN TAMIM

SAMIA ISLAM ILA

Department of Business Administration in Accounting and Information Systems

29th May 2024

Faculty of Business Studies

Bangladesh University of Professionals

Subject: Submission of Term Paper

On behalf of the Team

This term paper provides a comprehensive exploration of depreciation accounting, offering

Objective of this Term Paper...........................................................................................................1

Define Depreciation Accounting:............................................................................................1

Regulatory Framework on Depreciation Accounting in Bangladesh:.....................................1

Explore Depreciation Methods:...............................................................................................1

Address Challenges and Controversies:..................................................................................1

Examine Technological Advancements:.................................................................................1

Present Case Studies:...............................................................................................................2

Speculate on Future Trends:....................................................................................................2

Regulation and Recognition:...................................................................................................7

Challenges and Court Rulings:................................................................................................7

Standardization and Taxation:.................................................................................................8

Refinement and Modernization:..............................................................................................8

Regulatory Framework on Depreciation Accounting in Bangladesh..............................................9

Bangladesh Accounting Standards (BAS) and Bangladesh Financial Reporting Standards

Companies Act 1994:..............................................................................................................9

Bangladesh Securities and Exchange Commission (BSEC):..................................................9

Comparing Bangladesh’s Perspective with International Practices..............................................10

Alignment with International Standards:...............................................................................10

Challenges and Local Adaptations:.......................................................................................11

Evolution of Depreciation Methods...............................................................................................11

Depreciation Measurement Methods.........................................................................................11

Straight-Line Method Overview:...........................................................................................11

Benefits of Straight-Line Method:.........................................................................................13

Drawbacks of Straight-Line Method:....................................................................................13

Formula for units of Activity method:...................................................................................16

Calculate Depreciation per Unit:...........................................................................................16

Calculate Annual Depreciation:.............................................................................................17

Summit Power Limited..............................................................................................................17

Chevron Corporation Depreciation Analysis: 2020-2022.........................................................17

Analysis of Depreciation Practices........................................................................................19

Impact on Financial Statements.................................................................................................19

China Petroleum & Chemical Corporation (Sinopec) Depreciation Analysis: 2020-2022.......20

Analysis of Depreciation Practices........................................................................................21

Tobacco Bangladesh Company Limited (BATBC) Depreciation Analysis: 2020-2022...........22

Analysis of Depreciation Practices........................................................................................23

Impact on Financial Statements.............................................................................................24

Challenges and Controversies in Depreciation Accounting..........................................................26

Determining the Useful Life of Assets......................................................................................26

Selecting Appropriate Depreciation Methods...........................................................................26

Impact on Financial Statements and Tax Liabilities..................................................................27

Technological Advancements in Depreciation Accounting..........................................................28

Impact of Advanced Machinery and Equipment.......................................................................28

Changes in Depreciation Methods.............................................................................................28

Enhanced Asset Tracking and Management..............................................................................28

Increased Accuracy and Efficiency...........................................................................................29

Case Studies: Real-World Applications of Depreciation Accounting...........................................29

Manufacturing Industry: Heavy Machinery..............................................................................29

Construction Industry: Real Estate Development......................................................................29