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Prof. Dr. Syed Mohammad Ather, FCMA, Department of Management, University of Chittagong, Mr. Farid Ahammad Sobhani, Associate Professor, Department
of Business Administration, International Islamic University Chittagong and Mr. Abdul Hamid Chowdhury, Assistant Professor, Department of Business
Administration, International Islamic University Chittagong.
equally applicable to straight-line and reducing balance 6 50,000 29,490 175,000 117,965 325,000 382,035
7 50,000 23,595 125,000 94,370 375,000 405,630
method: 8 50,000 18,875 75,000 74,495 425,000 424,505
a. Plant and Machinery (10% to 15%) 95% cases 9 50,000 15,100 25,000 60,395 475,000 439,605
b. Office equipment (10% to 20% 100% cases 10 25,000 12,080 0 48,315 500,000 451,645
c. Furniture and fixtures (10% to 15%) 90% cases 11 500,000 451,645
d. Transportation & vehicles (10% to 20%) 100% cases
e. Other assets (10% to 20%) 70% cases salvage value only by pure chance. This amount is a significant
percentage of the original cost, and therefore, there is a significant
Regarding following of IAS / BAS - 16 or IAS / BAS - 8 as to deprecation
difference between reducing balance method and straight-line
methods and its proper disclosure in the annual reports, it is found
that 75% of the listed companies complied with them. depreciation. The result would no doubt motivate a change to straight-
line depreciation at the earliest appropriate point in order to avoid
Hypothesis Testing delaying the recovery.
1. For testing whether there is any association between
depreciation methods and account recoding system, a ÷2 has Concluding Remarks
been conducted. The related data are shown below: It is revealed from the study that reducing balance method is mostly
Depreciation Method Straight-Line Method Reducing BalanceMethod Total used in the CSE listed companies in Bangladesh. The reason lies on
A/C Recording System past record. But it is also evident from the study that the trend of
British Recording System 15 65 80
following deprecation is towards straight-line method. Greene,
American Recording System 10 10 20 Edward D., (1963) found a change of shifting from reducing balance
Total 25 75 n = 100 method to straight-line depreciation in the industrialized economy
of the USA. McFarland (1990) stated in his study that most of the US
The calculated value of ÷2 is found to be 8.33 and at 1% level
firms use straight-line depreciation; some use accelerated
of significance with 1 degree of freedom the tabulated value is
depreciation. Now it is obvious that the straight-line method of
6.635. Since the calculated value is greater than the tabulated
depreciation is widely used in the developing countries like the
value, hence null hypothesis will be rejected. Therefore, there
USA, Canada and the UK (Tandon, B. N. et al, 1997). It is also
is a highly significant relationship between adopting
expected that the starlight-line method would be widely accepted
depreciation methods and account recording systems (i.e. British
Recording System and American Recording System). The result by the listed companies in Bangladesh in near future.
also implies that in British account recording system Reducing References
Balance Method is mostly used and in American recording Greene, Edward D. (1963), Changing from Declining Balance to Straight-
system Straight-Line Method is mostly used. Depreciation, The Accounting Review, published by American
Accounting Association, Vol. 38, No. 2 (Apr., 1963), pp. 355-362.
2. For testing whether there is any significant difference between
Huefner, R. J. and Jen, F. C. (1970), Depreciation by Probability-Life, The
Reducing Balance Method and Straight-Line Depreciation, a Accounting Review, Vol. 45, No. 2 (April), pp. 290-298.
comparison between two methods has been considered in the IASB (2007), International Financial Reporting Standards (IFRSs), published by
following table: International Accounting Standards Board, London pp. 1011 - 1014.
McFarland, Henry (1990), Alternative Methods of Depreciation and the Reliability
To demonstrate the comparison, an investment of BDT 500,000 of Accounting Measures of Economic Profits, The Review of Economics
with a life of 10 years is assumed. The annual depreciation amount, and Statistics, Vol. 72, No. 3 (August), pp. 521-524.
the accumulated depreciation reserve, and the book value, which Sharma, B. K. (1988), Depreciation: Is It a Source of Fund?, Chittagong University
remains at the end of the period, are compared in the above table Studies, (Commerce), Vol. 4, 1988, pp. 133-147.
for the straight-line and the declining balance methods. Tandon, B. N. et al (1997), Depreciation, A Handbook of Practical Auditing,
published by S. Chand & Company Ltd., Ram Nagar, New Delhi-110
It can be observed from this table that at the end of the life of the unit, 055, pp. 179-201.
BDT 48,355 or 9.67 percent of the original cost remain under the Vatter, William, J. (1937), Depreciation Methods of American Industrial
declining balance method, which would represent a reasonable Corporations 1927 – 35, The Journal of Business, University of Chicago,
Vol. 10, No. 2 (April), pp. 126-146.